Gas Prices May Not Drop Anytime Soon

gas pump
Car at gas pump | Image by jittawit21

According to AAA, a gallon of gasoline costs, on average, $4.52 per gallon as of May 17, and that number continues to rise. As motorists experience this “pain at the pump,” we wonder when we might see relief from the high gas prices.

According to the American Petroleum Institute (API), a large percentage of that cost (59%) depends on the price per barrel of crude oil.

The most recent data from the Federal Reserve shows oil trading at just over $109 per barrel on May 9. Oil prices are high and have generally been increasing since bottoming out in April 2020.

API writes that the price of crude oil is dependent on global supply and demand and is currently at a seven-year high due to several geopolitical factors.

Increasing supply could help drive down the gas prices cost of a gallon. Could we see producers increase their output?

For the past six years, the Federal Reserve Bank of Dallas has surveyed several oil and gas producers, exploration companies, and oilfield service companies.

The Fed released this year’s survey, and according to respondents, oil exploration and development costs are at their highest level since the Dallas Fed began this survey.

The survey asked how much money a company needs to make per barrel to break even on an existing well or dig a new one:

On average, respondents said they needed about $34 per barrel to maintain their existing wells. This is up from $31 last year. Producers needed to make $56 per barrel to start a new well, up from $52 last year.

Oil prices have been considerably higher than those estimates recently, so why are more companies not expanding production to keep up with the rising demand? According to the report, several companies are concerned about the lack of available equipment and staff.

Oil producers cite fear of an oil downturn as another reason for not increasing production. According to the survey, most energy industry executives (59%) “Believe investor pressure to maintain capital discipline is the primary reason publicly traded oil producers are restraining growth despite high oil prices.”

The Fed also asked producers how much they believe their companies will increase oil production from Q4 2021 and Q4 2022. Half of the largest corporations said they would either not boost production or increase production by only a small amount (0% to 5%).

Respondents from smaller companies said they intend to ramp up production during that same time frame. Fifty-seven percent said they plan to increase production by more than 10%.

Finally, the Fed asked CEOs to predict what oil would be trading at by the end of the year. They guessed that oil would be around $94 by the end of the year. That could help lower the prices at the pump, but that remains to be seen.

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