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OP-ED: America’s oil boom
May 15, 2014, 05:00 AM Chicago Tribune

After a harsh winter, it’s time to get out and hit the open road. So what’s with $4-a-gallon gasoline? North American oil production is on the rise, so you might have expected a break at the pump by now. Yet gas prices remain stubbornly high.

What happened to the homegrown energy boom? Wasn’t North Dakota supposed to be America’s Saudi Arabia? How come gas isn’t back to $2 a gallon?

The boom is real, and North Dakota, along with states and Canadian provinces, is producing a gusher of oil. The North American energy bonanza now underway is helping the U.S. economy to pull out of the doldrums. It helped ease the pain of Chicago residents during the cold winter, since stepped-up natural gas production kept heating bills lower.

But gasoline, alas, is not going to be half price anytime soon, if ever. America’s oil boom is delivering broad benefits, but not necessarily at the pump.

The good news is that oil analysts say gas prices probably peaked for this year in late April.

Based on today’s market conditions, prices should decline by a nickel or a dime over the next month.

Prices bounce around during the year. It’s not unusual for prices at the pump to rise in the spring, ahead of the summer driving season. That’s due in part to refineries switching to a different formula for gasoline that meets clean-air requirements during the warm-weather months. As companies draw down winter stockpiles, conduct routine spring maintenance and ramp up production of the summer blend, prices are prone to short-term spikes.

This year, the transition has gone smoothly. Supplies of reformulated gasoline are building. The usual run-up in prices ahead of the summer driving season is likely to be especially short-lived. Prices also vary by geography: Some parts of the country — including southern Illinois, though not heavily taxed Chicago — could see gasoline selling below $3 a gallon later in 2014.

The controversial extraction technology known as fracking is contributing to the enhanced production of domestic oil and natural gas. The light, sweet crude produced in the U.S. sells at a considerable discount here compared with the price paid on other continents, because there is so much of it at our disposal, according to Tom Kloza, chief oil analyst for the Oil Price Information Service. The oil industry, as well as energy-dependent chemical, utility and industrial users, has been growing fast as a result. That economic activity ultimately creates jobs.

But the impact at the pump is limited because oil is an internationally traded commodity. By virtue of its soaring production, North America is more insulated from price shocks prompted by disruptive events in the Middle East and other oil-producing regions than it has been in years. The U.S. shale boom is replacing oil being kept off the market because of geopolitical issues in Ukraine, Iran and elsewhere.

But the U.S. can’t insulate itself entirely from global energy markets.

Energy prices are always a moving target. We got a break on heating bills during an extremely cold winter, thanks to natural-gas production. But we’ll pay more this summer to cool our homes, reflecting rising costs to secure electricity supply. Gasoline may not seem cheap these days, but it’s a relative bargain. America needs to keep conserving and producing energy to keep those costs in check.

 

 

Tags: prices, production, energy, gasoline, north, winter,


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