Supply and demand
Enjoy comfortable oil prices while they last
U.S. oil producers have said they plan to slow production to reduce supplies and thus boost the costs of their commodity, which in turn would raise gasoline prices. Sounds like tactics the United States used to have to swallow from OPEC. Now, we’re doing it to ourselves. Experts say that oil production will stay ramped up into 2020 then will slow later next year and after. So our relatively low gas prices could remain for several months. Enjoy while it lasts.
For the past two decades, the United States has embarked on a mission to produce more oil to fuel our cars, trucks, tractors, boats and airplanes, with the goal of lessening our reliance on foreign oil, mostly supplied by the Organization of Petroleum Exporting Countries, many of which are in the Middle East.
Shale-mining companies have had the most growth in U.S. oil production, and several such firms recently have indicated they expect to cut spending on new wells and are forecasting slower growth. Such voluntary moves to restrict growth are new in the U.S. industry, but it is a tactic used for years by OPEC.
The action comes as the various shale oil producers are being pressured by investors for better returns. The action would limit domestic oil supplies, boosting the value of the commodity and improving the financial results of the producers. But that would result in a rise of prices at the gas pump.
The U.S. Energy Information Administration forecasts 910,000 more barrels of production next year, half the increase of last year, and analysts anticipate increases will be minimal after that. The EIA expects crude oil prices to not increase until later in 2020 and that should keep average gas prices stable for at least the first half of next year.
Similar growth-restriction moves are anticipated by U.S. natural gas suppliers, in part, because of the huge inventory of the fuel has depressed prices — to the benefit of consumers but not to the producers. If this action comes to fruition, it could raise the cost of heating a home in the winter of 2020-21 and potentially affect the cost of electricity since many power plants are fueled by natural gas.
Supply and demand, and the bottom line of producers, do drive the oil and natural gas markets. It is an odd twist that, just as the United States is about to become a net exporter of oil and is one of the world’s top oil producers, consumers will be helping to foot the bill.