Motorists have been getting a break at the gas pump in recent weeks, but most probably don’t stop to think much about why prices are down.
According to one major regional gas retailer, the drop is mostly due to increasing U.S. oil production that can be attributed to advances in hydraulic fracturing technology.
Indeed, the federal government is predicting U.S. oil production will be the highest next year that it’s been since 1970, before the Arab oil embargo that began the modern high-price era.
Stewart’s Shops is calling attention to the price trend — and to the reduction in U.S. imports — by celebrating Oil Independence Days on Friday and today.
“After all these years, the U.S. is finally breaking OPEC’s hold on oil production,” said Stewart’s Shops President Gary Dake.
The company-wide sale lasts through 7 p.m. today, with the chain offering an additional 10 cents off per gallon below the standard price.
Stewart’s is the state’s largest gasoline retailer, selling an average of 4.7 million gallons per week through 273 stores.
“We’ve had a very positive response from drivers so far, who are always looking to keep some extra cash in their pockets,” company spokeswoman Maria D’Amelia said Friday.
Stewarts says its average retail price, which was $3.85 per gallon at the end of June, has dropped to $3.19 this week.
“It really comes down to supply and demand. The supply is way up, but demand has stayed pretty flat,” D’Amelia said.
There’s no question U.S. oil production has jumped dramatically in the past four years, particularly in the Bakken crude fields of North Dakota, where much of the oil now coming by rail to the Port of Albany is produced. With the industry having achieved breakthroughs in fracking and horizontal drilling technology to recover hard-to-reach oil, North Dakota has passed Alaska to become the nation’s No. 2 oil producing state. It trails only Texas, the nation’s top oil producer for more than a century.
The U.S.. Energy Information Administration said U.S. production averaged an estimated 8.7 million barrels per day in September, the highest monthly production level since July 1986. The agency, part of the federal Department of Energy, is predicting U.S. production will reach 9.5 million barrels per day in 2015, which would be the highest average daily production since 1970.
Average daily production in 2013 was 7.4 million barrels, according to EIA data, up nearly 50 percent from the recent historic low in 2008.
The hydraulic fracturing technology being used to extract much of the new oil is basically the same as what’s become so controversial in New York — though in New York, the object would be extraction of natural gas, not oil.
In hydraulic fracturing, water, sand and chemicals are forced down a well under high pressure to fracture rock deposits deep in the ground and release the petroleum and gas they contain. In the West and in western Canada, the technique is being used on shale deposits that contain oil.
In New York, the idea of fracking has been extremely controversial. There has been a moratorium on its development for the last four years, while the state studies environmental and human health issues. The process, however, is well established in the West.
Regardless of how the oil is produced, the increased production has made a difference at the pump and will also matter when fuel oil is delivered this winter: U.S. oil prices hit a three-year low of $76 per barrel this week and could fall even lower.
But there are concerns in some quarters that prices have fallen close to the level where they’ll be too low to justify further investment in oil field development. Another concern is that lower prices — and reduced exports to America — will mean less revenue for OPEC countries and other oil producers and will damage the economies of dozens of oil-producing countries, from giants like Russia and Saudi Arabia to poorer producers like Nigeria. Those countries use oil as a primary revenue source or have significant debt they plan to pay off with future oil revenues, so a major price drop could be devastating.
“Oil prices are likely to continue their slide for some time, until real damage is done, perhaps to several economies simultaneously,” energy economist Gail Tverberg wrote in a blog post this week.
D’Amelia said Stewart’s tracks price trends and world developments but doesn’t try to make long-term predictions on how prices will move.
“We could be one global event away from prices headed back up again, so we’re celebrating now,” she said.