By Kevin Henning
For the “Progressive Views” column, Boerne Star, June 16, 2024
When I worked in the petroleum industry, the public blamed oil companies when gasoline prices got high. Today, the public likes to blame politicians. Of course no one steps up to sing the praises of either group when prices fall. One thing we all know is that prices do change. In 1989 the inflation adjusted national average price of a gallon of regular was $1.09 versus $3.00+ in 2024. The late 1980s saw a period of low oil and gasoline prices that stretched well into the 1990s. During that period the petroleum industry laid off over 400,000 workers. No one shed a tear except for those of us in the industry and so many families here in Texas.
World markets determine the prices for most energy commodities with oil being the most important. The price of oil is the main factor affecting the price of gasoline and makes up about 50% of the cost of a gallon of gasoline. The other significant factors are margins, transportation, taxes, and refining operating costs. The Organization of Petroleum Exporting States (OPEC) is made up of twelve countries and controls a huge amount of the world’s oil production. Russia, Mexico, and seven other countries that align themselves with OPEC (called the OPEC + group) help ensure that oil prices remain in a range that is not too high to reduce demand but not so low that it significantly eats into profits. OPEC+ controls over 50% of world oil production. Sometimes a member, usually Saudi Arabia, gets mad at cheaters, over-produces, and prices fall. Saudi Arabia and Russia both produce about 10 million barrels a day. Another country has thrown a monkey wrench in the system with growing production. The United States is currently producing 13.1 million barrels a day, the most of any country, ever. Super Fracking has been the secret to this growth, and Texas has been a super beneficiary. Current Texas production is 5.6 million barrels per day, again the most ever and the main contributor to our historic state budget surplus. Texas is the fourth largest oil producer in the world.
World crude demand is now about 102 million barrels per day and still growing slightly. Worldwide excess production capacity is about 4 million barrels per day so there is room to grow but not much. Currently, the United States exports crude oil, petroleum products, and natural gas. According to the Energy Information Agency, total United States petroleum exports are over 9 million barrels per day and total petroleum imports are about 8 million barrels per day. Most imports come from Canada. Domestic producers can sell higher quality oil overseas and take in lower quality crude than our refineries are designed to handle. It is efficient and some lower costs probably do flow to the consumer but more remains in the pockets of our refiners.
Currently, our refineries are totally supplied, so there is no supply shortage in the United States. In the world market, OPEC+ control of supply has kept oil prices above $70 per barrel. OPEC+ is the main culprit causing high gasoline prices. The second culprit is margin. The refining businesses are making a killing because they can keep margins up most of the time. Prior to 2015, petroleum exports were banned except in special circumstances. So products would build up in the industry tanks and as a result prices would have downward pressure. Remember gas wars? You don’t see them anymore. Thus margins have been kept robust (except during the pandemic) and are causing high gasoline prices. The refining and marketing industry are seeing high profits. Looking at the S&P index for the refining and marketing industry, we see growth of almost 60% over the past year.
Climate change is real and we must move to renewables that don’t produce carbon dioxide to save our planet. However, we cannot again forget the petroleum workers whose hard work brings so many economic benefits to Texas. They don’t deserve to be cast aside. Texas Democrats know this and will not abandon Texas workers.
To find out more about how to get involved with the Kendall County Democratic Party, visit www.kcdems.us.
Kevin Henning is a local Democrat.
