Iraq is one of the world’s largest oil producers, so when the ISIS militants rolled in from Syria and took over Iraq’s largest oil refinery, global oil traders and gas companies braced for a sharp spike in prices. Consumers expected to see higher prices at the pump in short order.
Instead, oil and gasoline prices are right where they were a year ago. As you can see from the chart, “regular” grade gasoline prices in different parts of the U.S. fell during the winter and have risen again in the summer months. If you happen to live on the West Coast and suspected that you paid more for gas than the rest of the country, well, this chart confirms it; the prices in California and the West Coast generally are more than 50 cents a gallon higher than the cost at the pump along the Gulf Coast, where the U.S. has the bulk of its refineries. People in the Northeast, Mid-Atlantic and Southern states generally fill up their tanks at cheaper prices.
If you want a longer-term view, look at the second chart, which shows the cost of “regular” grade gasoline since 1990. It shows prices hovering around a dollar a gallon for most of the 1990s. (The good old days!) Since then, the price has gradually crept upwards, with greater volatility and a deep price drop during the Great Recession. Since the beginning of this decade, prices have remained fairly level, and indeed today’s gasoline prices are almost exactly what they were in early 2008.
Prices have held steady despite the turmoil in the Middle East, in part because most of the Iraqi oil fields are located in the southern part of the country, a safe distance (so far) from the ISIS insurgency. The other main oil fields are located in Kurdish-controlled areas in the northern part of the country, and the Kurds have managed to protect their ethnic border with great effectiveness. Add to that a recent agreement in Libya between the central government and a regional militia that will add 150,000 barrels a day to that country’s crude oil exports.
The greatest factor for current prices is the fact that the US now produces more than 7.4 million barrels of crude per day as of the end of 2013 and is expected to produce more than 8.5 million barrels a day by the end of this year and 9.5 million barrels per day by the end of 2015 when the US is expected to be a net exporter of oil. US imported oil is down to 33% at the end of 2013 of consumption from 60% in 2005. By the end of 2015 imports are expected to account for 22% of consumption which is where we were at in 1970 when gasoline prices were about 35 cents a gallon. The change in balance of payments is billions of dollars and it also reduces the pressure on gasoline prices. Most of the oil continues to come from Texas which is running at 3 million barrels a day which is the level the state produced in 1977 while North Dakota is now producing 1 million barrels per day. It should be noted that actual production of oil and natural gas in the US has exceeded the estimates by greater than a million barrels for the last three years so the US may become a net exporter sooner.
The moderation in prices, from $4.00 at the pump two years ago to roughly $3.60 today, is acting as a kind of stealth stimulus for the U.S. economy. U.S. drivers are expected to use roughly 133 billion gallons of gasoline this year, so the price break adds $53 billion of savings to peoples’ balance sheets. This, added to the lower costs for factories, airlines and electric power plants, could add half a percentage point to U.S. economic growth in 2014.
Sources:
http://www.rte.ie/news/business/2014/0707/629012-energy-index/
http://hosted.ap.org/dynamic/stories/O/OIL_PRICES?SITE=AP
http://www.usatoday.com/story/money/markets/2014/07/06/oil-iraq/12004745/
http://money.cnn.com/2012/06/15/news/economy/gas-prices-stimulus/index.htm
http://americasmarkets.usatoday.com/2014/07/08/u-s-oil-production-in-2015-to-be-highest-since-1972/
