EnergyGas Prices Jump as West Texas Crude Oil Eclipses $120 Per Barrel

Energy costs are soaring in Texas and throughout the world after a long period of cheap oil and gasoline prices.
March 10, 2022
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Areas throughout Texas are seeing the gasoline price jump toward $4 per gallon in tandem with the price of West Texas Intermediate (WTI) crude oil nearly reaching $130 per barrel.

According to the American Automobile Association (AAA), the state’s gas price average is $4.004. Culberson County is seeing an average price of $4.482 while Ochiltree County is seeing the lowest average of $3.719.

The WTI price reached $129.79 per barrel (bbl) in the previous week, a 52-week high, but is now back down to just under $114 bbl.

According to the Energy Information Administration (EIA), weekly gas prices were consistently in the low-$2 per gallon range before the pandemic hit which caused a demand shock as most travel evaporated overnight. During that time, the price of oil futures dropped nearly to negative $40 bbl.

As producers adjusted to the new demand, gas prices dropped to sub-$2 levels where they remained until 2021. From there, they rapidly jumped to high-$2 levels and this year eclipsed $3 per gallon.

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Oil prices adjusted to the new levels of demand, returning to the pre-pandemic price between $60 and $70 bbl only in March 2021 and rose steadily from there.

Gasoline and oil prices are inextricably tied, with the latter directly influencing the price of the former as gas is a product of crude oil. Gas prices contribute to oil prices through transportation and machine operating costs.

And while the price of oil is rising now, its direct effect on gas prices will not be seen in these immediate prices. They will feed continued price increases in gasoline in the weeks and months to come.

Texas produced 1.5 billion bbl of oil through November of 2021, according to the Texas Railroad Commission, still on par with the post-pandemic levels in the latter half of 2020. In 2019, Texas produced 1.8 billion bbl. Oil prices, and gas prices indirectly, dropped so much during the early part of the pandemic because there was more supply than demand could consume.

But once the market adjusted, prices leveled out until the opposite problem occurred earlier this year when travel demand began to return but production hadn’t yet adjusted — low supply plus high demand equals high prices.

Those in the oil and gas industry predicted this continued rise in oil and gasoline prices late last year as the market adjusted to the return of pre-pandemic travel levels and the new administration’s policies began taking effect.

The natural ebbs and flows of supply and demand aren’t the only things influencing the prices. 

On his first day in office, President Joe Biden issued two directives that impacted the industry. First, he nixed approval for the Keystone XL pipeline meant to provide another route, and more transportation capacity, for Canadian oil to Texas refineries. Texas and 18 other states sued the administration over this directive, a challenge that was dismissed by the federal district court in January.

Second, he prohibited new or renewed drilling leases on federal land. Existing leases are permitted to run their course.

Texas has a relatively small portion of federal land compared with other states, such as neighboring New Mexico, but there are still 3 million acres of federally owned land in the state.

The American Petroleum Institute estimated the order would lead to the elimination of 120,000 oil and gas jobs in Texas.

These two directives are part of a broader White House agenda to move away from domestic oil and gas reliance and toward renewable sources of energy. But while issuing these directives stateside, the Biden administration has repeatedly lobbied the Organization of the Petroleum Exporting Countries (OPEC) to ramp up its oil production in an effort to stabilize and reduce the global price of oil.

President Joe Biden announced that all oil imports from Russia would be halted immediately. During this announcement speech, Biden took aim at the domestic energy industry saying the conflict in Ukraine is going to cause prices to increase, stating, “But, it’s no excuse to exercise excessive price increases or padding profits or any kind of effort to exploit this situation or American consumers.”

“Russia’s war is affecting us all, but it’s no time for profiteering or price gouging,” he added. “It’s simply not true that my administration’s policies are holding back domestic oil production.”

According to the Railroad Commission, operating oil well counts in Texas have only increased by 757 since February of 2020. Monthly oil production has risen slightly over the course of 2021. According to the EIA, crude oil production has gone from 144,480 bbl in January 2021 to 154,638 in December 2021 — recovered from a substantial drop during Biden’s first full month in the Oval Office, dropping to 104,857 bbl in February of last year.

But reports indicate that the Biden administration is in talks with the Venezuelan government to ease sanctions against the oil-producing country to replace lost imports from Russia.

In a speech on the Senate floor, Sen. John Cornyn (R-TX) criticized the idea, saying, “There are media reports today the administration is considering easing sanctions on Venezuelan oil to compensate for what nations import from Russia. But I have to ask… why on earth would we trade one oil-rich dictator for another?”

Last November, Biden directed the federal government to tap into the nation’s strategic petroleum reserve to reduce prices by injecting more supply into the market — but the reserve only holds 600 million bbl, enough for about two weeks of the country’s consumption.

Added to this is all that is unfolding on the European continent. For months, Europeans have seen natural gas prices jump substantially. Those costs have jumped into hyperdrive as the geopolitical conflict in Ukraine continues. Russia supplies natural gas to many European countries and to many places on America’s East Coast, as domestic laws like the Jones Act make it much costlier to ship Texas liquefied natural gas (LNG) to the New England states.

In an open letter to the Biden administration, Texas Railroad Commission Chairman Wayne Christian called for the White House to restore the Keystone XL pipeline permit, rescind his federal land drilling order, remove exporting restrictions on LNG so U.S. producers can supplant the Russians, and halt all oil imports from Russia.

The economic opportunity is there, especially on the LNG export side. Germany nixed the Nord Stream 2 pipeline project — planned to transport Russian LNG to Germany more efficiently than ground transport — and now a supply vacuum exists that the U.S. could fill.

Oil producers use projections to make investment decisions on the construction of new operations or charting out their planned production levels. And part of those projections is federal and state policy that may or may not make it harder and more expensive to deliver products to their consumers.

The nation is facing 7.5 percent inflation, partially driven by the growth of fuel costs. That inflation makes the price of everything rise and thus will affect the fuel prices down the road as the costs at every level of the supply chain rise.

And it’s not just fuel costs that are affected by higher oil and gas prices. Anything that requires transportation sees that increase meted out into the end price. 

Oil is used for more than just fuel. Plastic, which is used in anything from clothes to iPhones and everything in between, is made from crude oil byproduct. The higher oil price will influence those as well.

Texas has long been resistant to the economic ebbs and flows on the global energy market because of its prolific stateside production. Currently, Texans are not seeing quite the spike that the West or East Coasts are facing. But Texas gas prices are up nearly 50 percent from their levels a year ago.

And while the higher price of oil means more money per barrel for Texas’ oil producers, that cost bleeds into every level of the supply chain including what drivers pay at the pump.

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Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.