Area seeing dramatic increase in gas prices

Area residents have seen a significant increase in the price of gasoline lately, even though the pandemic is still ongoing. This sudden rise in the price might look like it will greatly affect people’s lifestyle, but in fact, this is a normal occurrence. 

Michael Noel, a Texas Tech professor in the Department of Economics, said the price of gasoline has been going up for the last three months, and this is largely determined by the price of crude oil also being raised in the global market. Prior to that, the price of gasoline was relatively low for the same reason.

“Last year they went down to record low. The gas price here in Lubbock was like $1.40 on average. There were a few places where you could buy gas for a dollar,” Noel said. “The prices go down because of the pandemic, while there are still a lot of global supplies that caused crude oil prices to go down.”

With people beginning to go out again, the demand for fuel to run vehicles continues to rise. As a result, the demand for gasoline also rises and thus creates a situation where the price must be raised to catch up with demands, Noel said.

This fact is not the only reason for the changes in the pricing of petroleum products. Regarding how crude oil prices fluctuate, Noel said that there are a few reasons behind the changes.

“One of the major oil suppliers is OPEC, the Organization of the Petroleum Exporting Countries,” Noel said, “and they define how much oil to sell or not to sell while trying to influence the price of crude oil. They have something to do with it.”

Regarding how the weather may be affecting oil and gas production, Noel said that it will take a month or two to transport the oil through pipes into barrels, which might not be affected by the short and rapid weather changes. This makes the weather not exactly a factor for the changes in oil and gas pricing.

The other reason lies in the fracking industry in Texas, which involves digging and extracting oil from the ground. Noel said the cost of doing this might be another factor that creates fluctuations in the price of crude oil globally.

Contrary to this claim, Marshall Watson, chair at the Department of Petroleum Engineering at Tech, said that the fracking process might not be the cause of the changes in gas pricing this time. This is because the United States has decided to import oil from other countries to compensate for the low supply domestically after months of disruptions by the pandemic.

“We can go back and become self-reliable on oil, we do not need to import,” Watson said. “However, oil companies are afraid that oil prices may collapse again, plus a lot of oil companies, similar to other businesses, took a huge hit from the pandemic. Those companies are struggling right now to drill an oil well.”

The financial and economic impact caused oil companies to find decisions for drilling oil wells harder to execute. However, Watson said that if they managed to do it, the amount of oil from these wells should be able to supply the entire United States demand for many years to come.

While being unable to find an opportunity to drill more wells, these companies simply cannot sell the oil they have preserved amidst the pandemic, since the process of extracting oil from wells is a long process that falls rapidly in production, Watson said. 

“A well can produce up to 500 barrels of oil per day at the start, but it will eventually decline down to 100 barrels or less a day by the end of the year,” Watson said. “This, plus the amount of time needed to extract and transport oil into barrels, make the amount of oil available simply not enough for distribution.”

Timothy Fitzgerald, a Tech professor in the Rawls College of Business, said other than the fixed price for drilling oil and the price for production, another factor involves the pricing of crude oil and its products plus the cost of maintenance. After months of low consumption, there is a need for manufacturers to keep the oil, as well as the oil manufacturing equipment, from being affected by outside conditions.

Fitzgerald said that what the area is experiencing right now is natural, the gas price is only recovering from the impact of the pandemic, and this process will be gradual. 

“Very low production rates contribute a lot to the price, but most of the time it doesn’t matter that much,” Fitzgerald said. “During low consumption periods, we tend to produce too much oil, and this keeps the price from recovering right away.”

The petroleum and fracking industry suffered a lot during the pandemic, like other categories of businesses. The increase in oil price, Fitzgerald said, might be a sign of their revival.

“The oil producers had a very bad year,” Fitzgerald said. “2020 was rough for the oil producers, they lost a lot of money. Getting a little bit more money at this point can really help them.”

Despite the rise in prices, the price of crude oil and gasoline is still relatively low compared to before the pandemic. There is still too much uncertainty to tell whether this rising pattern will continue, but for the duration of the outbreak, experts said the gasoline price will not rise to an all-time high.

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