No, American Oil Producers Don’t Determine Global Oil Prices, But They Can Help Prevent Significant Market Swings

The Memorial Day weekend marked the start of summer driving season, and consumers are in a good spot thanks to American oil production.

In fact, last week the Wall Street Journal reported that despite geopolitical tension and increased demand, gas prices are remaining steady:

“A slow-but-steady decline pushed the average U.S. cost of regular gasoline to $3.58 a gallon last week, according to federal data, down from $3.67 about a month earlier. The recent figure is roughly in line with prices a year ago and about 5% below the typical pre-Memorial Day cost since 2000, when adjusting for inflation.”

The Journal also noted that increased production in the country and by American companies has contributed to the decline in fuel costs nationwide:

“Additional supplies are keeping many storage tanks around the world well-stocked. U.S. oil drillers are ramping back up after winter storms knocked some wells offline. A newly expanded pipeline from the Canadian oil sands to an export terminal near Vancouver is shuttling more crude to the global market. Offshore production from Guyana continues to grow.”

However, despite the current normalization in gas prices, several factors threaten to drive up costs for consumers throughout the summer.

  1. OPEC+

This weekend, OPEC+ members will meet to decide whether to increase, decrease, or extend current production cuts.

According to reporting from the Journal, analysts expect OPEC+ – which includes Russia and Russian allies, in addition to Gulf and African states – to extend the voluntary production cuts currently in place. UBS analysts forecast OPEC+ will extend the current cut for at least another three months.

While the majority of analysts are predicting OPEC+ production levels to go unchanged, there is no guarantee that the cartel or its individual members won’t surprise the markets with deeper production cuts. Last summer, Saudi Arabia announced surprise unilateral production cuts on top of the cartel’s slowdown, with the explicit goal of creating uncertainty in the market, according to Saudi Energy Minister Prince Abdulaziz:

This is a Saudi lollipop. We wanted to ice the cake. We always want to add suspense. We don’t want people to try to predict what we do… This market needs stabilization.” (emphasis added)

In anticipation of potential further cuts, oil prices have already ticked up in the days leading up to the June 2 meeting.

  1. Hurricane Season

Hurricane season also threatens to put pressure on gas prices, particularly in the Gulf Coast region, which has a high concentration of oil and natural gas production, transportation, and refining infrastructure. Each year, the energy industry takes safety and preparedness measures to ensure that workers, operations, and consumers are minimally impacted by storms.

New U.S. Energy Information Administration data forecast that 2024 will be a particularly strong hurricane season in the Atlantic and Gulf Coast regions. Offshore crude oil operators and refiners are the most at-risk during hurricanes, and both facilities have protocol in place to evacuate nonessential workers and, if needed, halt operations if a storm poses significant safety threats.

Data from CleanTechnica shows that any disruption to operations in the Gulf Coast can have severe impacts for gasoline supply availability across the country, as the Texas Gulf Coast and Louisiana Gulf Coast regions together account for 48 percent of total U.S. refining capacity.

That’s why Gulf Coast operators build deliberate resilience plans to mitigate risk, which include streamlining communication systems, conducting timely assessments, improving emergency response and business continuity plans, using technology such as drones for aerial inspections, and collaborating strategically with government agencies.

  1. Demand

Finally, demand for hydrocarbons continues to surge. Due to increased energy consumption primarily from developing economies that are using the essential resources as engines to improve living standards, global demand for oil in 2024 is expected to increase by approximately 1.2 million barrels per day. Given that global travel is bound to increase over the summer, this demand surge and the resultant pressure on gas prices could be felt in the coming months.

An increased global appetite for oil and natural gas underscores the importance of building out more hydrocarbon infrastructure. Unfortunately, by blocking pipelines, reducing federal drilling leases to a trickle, and demonizing the energy industry, the Biden administration has artificially limited American producers’ ability to fill in the gap.

While the American oil industry cannot set global oil prices because it constitutes a minor share of the global market and is comprised of thousands of individual producers who are barred from artificially manipulating prices, American-produced oil is critical to maintaining price stability. Unlike OPEC+, when global prices increase, American producers, in particular, are incentivized to help meet demand by producing more oil, leading to a healthy market equilibrium.

Bottom line: Despite regulatory roadblocks, domestic energy companies are continuing to responsibly produce the energy that Americans need to engage in modern life. As the summer rolls around and a  number of global factors are bound to affect the price of oil and natural gas, it’s essential for leaders to prioritize domestic production of essential energy supplies.

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