The Atlanta Journal-Constitution
PAIN AT THE PUMP: WHY DRIVERS MAY SEE HIGHER GAS PRICES
U.S. companies, foreign producers reluctant to increase supply.
HOUSTON — Even as oil and gasoline prices rise, industry executives are resisting their usual impulse to pump more oil out of the ground, which could keep energy prices moving up as the economy recovers.
What’s happening
The oil industry is predictably cyclical: When oil prices climb, producers race to drill — until the world is swimming in petroleum and prices fall. Then, energy companies that overextended themselves tumble into bankruptcy.
That wash-rinse-repeat cycle has played out repeatedly over the last century, three times in the last 14 years alone. But, at least for the moment, oil and gas companies are not following those old stage directions.
An accelerati ng ro l lout of vaccines in the United States is expected to turbocharge the U.S. economy this spring and summer, encouraging people to travel, shop and commute. In addition, President Joe Biden’s coronavirus relief package will put more money in the pockets of consumers, especially those who are still out of work.
Why it matters
Even before Congress approved that legislation, oil and gasoline prices were rebounding after last year’s collapse in fuel demand and prices. Gas prices have risen about 35 cents a gallon on average over the last month, according to the AAA motor club, and could reach $4 a gallon in some states by summer. While over
all inflation remains subdued, some economists are worried that prices, especially for fuel, could rise faster this year than they have in some time. That would hurt working-class families more because they tend to drive older, less efficient vehicles and spend a higher share of their income on fuel.
In recent weeks, oil prices have surged to more than $65 a barrel, a level that would have seemed impossible only a year ago, when some traders were forced to pay buyers to take oil off their hands. Oil prices fell by more than $50 a barrel in a single day last April, to less than zero.
That bizarre day seems to have become seared into the memories of oil executives. The industry was forced to idle hundreds of rigs and throttle many wells shut, some for good. Roughly 120,000 oil and gas workers lost their jobs over the past year, and companies are expected to lay off 10,000 more this year.
Yet even as they are making more money thanks to the higher prices, industry executives pledged at a recent energy conference that they would not
expand production significantly. They also promised to pay down debt and hand out more of their profits to shareholders in the form of dividends.
Scott Sheffield, CEO of Pioneer Natural Resources, a major Texas producer, predicted that U.S. production would remain flat at 11 million barrels a day this year, compared with 12.8 million barrels immediately before the pandemic took hold.
Even OPEC and allied producers like Russia surprised many analysts this month by keeping several million barrels of oil off the market. OPEC’S 13 members and nine partners are pumping roughly 780,000 barrels of oil a day less than at the beginning of the year, even though prices have risen by 30% in recent months.
What’s next
Some analysts expect that when OPEC and its allies meet again next month, they will allow more production, which could drive down prices. But for now, petroleum stockpiles are dwindling around the world as energy demand begins to recover.