It’s too early to say anything for sure about this weekend’s attacks on key oil infrastructure in Saudi Arabia. But here are a few preliminary notes to help you make sense of the headlines and what they mean for energy prices. Continue reading “Attacks on Saudi Oil Industry Rock Crude Prices”
Democrats and Republicans don’t agree on much these days, especially not where climate change is concerned. On Capitol Hill, the debate remains highly polarized: While left-wing Democrats champion the controversial Green New Deal, many Republicans still don’t believe climate change is a real problem.
But lawmakers do agree on at least one possible way to address the issue: Carbon capture and sequestration, or CCS, the process of capturing man-made carbon dioxide at the source and either using or storing it underground.
If you follow the oil markets closely, you might be feeling a bit motion sick these days. To call the path of crude oil prices over the last nine months “volatile” would be putting it mildly. Benchmark West Texas Intermediate crude rallied at the beginning of last autumn, hitting a peak of $76.41 per barrel on Oct. 3. From there, WTI plunged, reaching a low of $42.53 the day before Christmas: A decline of 45%. Then, crude started a new rally as 2019 began, eventually zooming back up to $66.30 on April 23, for a gain of 56%. Since then, it has fallen back to about $53, for a loss of roughly 20%. Nauseous yet?
What’s been driving all these ups and downs? Two competing narratives of under- and oversupply. The first, which prompted last fall’s big rally, held that the world would soon find itself short of oil because of the strong global economy and looming U.S. sanctions on Iran’s oil industry, which would take key barrels off the market. But when Washington waived some of those sanctions, the market suddenly looked oversupplied, and oil prices tanked. Not for long, though: Anticipation of strong oil demand and concerns that oil exports from Venezuela and Libya would shrink sparked a new rally that lasted through the winter. Then, this spring, investors grew nervous that various trade disputes would weaken the global economy enough to sap oil demand, and prices once again dropped.
Even if you don’t follow the oil markets or invest in oil companies, you probably felt the effects of all these market gyrations. Retail gasoline prices soared this winter and early spring, reaching almost $3 per gallon in the weeks leading up to Memorial Day. Since then, the national average price of regular unleaded has pulled back by about 20 cents per gallon. (Though drivers in many parts of the country have been paying gas prices that start with a 3 lately, the national average price of regular unleaded hasn’t exceeded the psychologically painful $3 mark since 2014.)
So, what comes next for oil prices? As is usually the case with questions of economics, the answer is: It depends.
Specifically, the outlook for oil prices depends on the overall health of the economy and whether the longest expansion in modern U.S. history can keep going. Overseas, growth is weakening significantly in China and sputtering in Europe. Parts of Latin America look even worse. The U.S. remains in good health, but can that continue when most of the rest of the world is slowing down? A resolution to the trade war between Beijing and Washington would go a long way toward reviving overseas growth, but that is far from a given at this point.
If the economy can keep chugging along, and if the trade picture improves, I think the next move in oil prices will be modestly higher, perhaps after a further dip in the near term. Why? Several reasons.
OPEC and its partner, Russia, have been holding back their oil exports in order to boost prices. It’s not certain the cartel and Moscow will maintain that policy for the rest of this year, but there’s a lot of pressure on them to do so. Current oil prices are not high enough to fund the budgets of OPEC’s petro-state members.
Production losses remain a real concern in two troubled countries, Venezuela and Libya. Venezuela has already seen its output drop significantly in recent months as its economic crisis deepens. Libya is holding up for now, though it remains plagued by internal violence. The U.S. has imposed the previously delayed sanctions on Iran’s oil industry, which have also caused Iranian production to slip.
The latest attack on oil tankers in the Persian Gulf further complicates the picture. Two tankers transiting the narrow Strait of Hormuz with petroleum products were reportedly hit by torpedoes and damaged earlier today. It’s not yet clear what happened or who is responsible, but suspicions that Tehran was involved raise fears of a shooting war between the U.S. and Iran in the oil market’s most vital shipping route.
Here in the U.S., production is booming, but it’s probably ready to take a breather. The latest data from the Department of Energy peg domestic crude output at 12.3 million barrels per day, the highest in the world and up 1.4 million barrels per day from a year ago. That’s helped keep a lid on prices recently. But drilling activity has been slowing, which points to less production growth in coming weeks and months. According to oil-field services firm Baker Hughes, there are about 100 fewer rigs drilling new oil wells now than there were last autumn, when prices were higher.
In other words, there are reasons to believe that global oil supply is going to tighten up a bit.
Stephen Schork, editor of energy investing newsletter The Schork Report, thinks the recent sell-off will come to an end fairly soon. “I think we are at the bottom” for crude prices, he says, especially since, at current prices, many operators in U.S. shale fields will struggle to turn a profit. He’s concerned about the health of the economy right now, but believes much of oil’s recent price slide was sparked by strength in the value of the dollar this spring. (When the dollar rises, commodities priced in dollars become relatively more expensive for overseas buyers, which hurts demand.)
Whatever happens, prepare for more volatility ahead. Oil prices jumped on the news of the damaged tankers in the Gulf, but that price spike could reverse quickly if the situation calms down. Likewise, if global oil production slips a bit and stockpiles of crude in storage start to fall, prices will probably jump. So, keep your motion sickness pills handy, but watch for prices to eventually stabilize and trend higher if the economy can maintain its momentum.
I recently gave some basic energy saving tips that may help consumers lower their utility bills. One of those tips was considering replacing conventional lightbulbs with light emitting diodes, or LEDs.
I figured advice isn’t very good if I wouldn’t take it myself, so I bought two LEDs to replace two old-fashioned incandescent bulbs in the light fixture above my dining room table. It may sound like a boring chore, but it promises to deliver a far better return on my investment than any stock or bond I’m likely to buy.
I won’t go into the physics of how LEDs work, because as a journalist who hasn’t seen the inside of a science classroom in a long time, I’m not qualified. Suffice it to say that LEDs generate light much more efficiently than Thomas Edison’s venerable incandescent bulbs do. And though LEDs were very expensive when they first hit the market, their prices have come down sharply. Plus, they have several advantages over spiral-shaped compact fluorescent bulbs, which are also quite efficient: Unlike CFLs, LEDs don’t contain toxic mercury. They can be dimmed, which CFLs generally can’t, and they can produce many different colors and hues of light, whereas CFLs tend to cast a harsh, white glow.
More importantly for the cost-conscious, LEDs can save you a bundle.
Here’s the math in my case. I bought a two-pack of dimmable LED bulbs rated to produce the same amount of light as a conventional, 60-watt incandescent. They are the same familiar A19 bulb shape as the incandescents traditionally used in many residential fixtures. (Picture the “Eureka!” lightbulb that appears over cartoon characters’ heads when they think of a bright idea.)
The LEDs I bought consume 10 watts of electricity. So, two operating together at full brightness consume 20 watts, whereas the two old bulbs used 120 watts. Thus, every hour I use them, it saves me 100 watt-hours, or one-tenth of a kilowatt-hour (the unit of power the electric company uses on your bill). I estimate I use the light an average of two hours a day, so that’s two-tenths of a kWh per day, or 73 kWh per year.
In Virginia, where I live, residential electricity rates average 11.55 cents per kWh, so my savings of 73 kWh per year works out to $8.43 per year. That is almost exactly what I paid for the two bulbs.
In other words, I’ll earn back my initial investment in a year, and then save another $8 or so every year thereafter. Granted, that’s relatively small potatoes (though I’ll take a free $8 anytime you offer it to me). But in percentage terms, it’s hard to beat an investment that repays your upfront cost in a year and then pays you that amount again each year afterward. (The maker of the bulbs I bought estimate they’ll last more than 22 years at three hours per day, though cheaply made LEDs have been known to fail much sooner.)
The savings really add up if you replace more bulbs with LEDs, and/or use a given light for more hours per day. Multiply my $8 per year by a few high-use fixtures and you’re talking about some meaningful savings. That’s especially true if you live in a region with high electricity rates. The national average residential cost was recently about 12.9 cents per kWh, according to the Department of Energy. But consumers in New England pay more than 19 cents on average. In California: 18.3 cents. In Hawaii: An eye-watering 29.5 cents. The higher the rate you pay, the more potential savings you can realize.
One downside of switching to LEDs is the additional choices you’ll have to make. LEDs can be dimmable or not, and the dimmable kind often work best on a dimmer switch designed for LEDs. Their light output is measured in lumens, which is not a unit of measurement most consumers are familiar with (though LEDs are also generally marketed as having the light equivalent of conventional bulbs: 40 watts, 60 watts, 75 watts, 100 watts, etc.). You must decide what sort of light you want, such as soft white or daylight (the soft white bulbs I chose look like regular incandescent bulbs to me; they cast a pleasant, yellow glow). And if you’re installing the bulbs in an enclosed light fixture, you’ll want LEDs that are rated for that.
Luckily, all the specs are spelled out pretty clearly on the bulbs’ packaging. And many home improvement stores show different bulbs in display cases that let you see the difference between, say, soft white and daylight.
To me, those extra considerations seem like a small price to pay for a lower electric bill. Saving money doesn’t get much easier than screwing in a new light bulb.
A few weeks ago, I wrote about the implications of the Green New Deal, a proposal backed by several congressional Democrats that would essentially ban all fossil fuel use by the year 2030. Since then, a resolution outlining the GND’s principles has been introduced, and has generated plenty of debate, even though it’s a non-binding resolution—meaning it’s just a commitment to ideas, not actual legislation.
One of the idea’s more overlooked provisions is a commitment to “upgrading all existing buildings in the United States and building new buildings to achieve maximum energy efficiency.” Like most of the rest of the plan, this idea would be extraordinarily expensive. The resolution has no chance of passing the GOP-controlled Senate, and House Speaker Nancy Pelosi (D-Calif.) has no plans to bring it for a floor vote.
But if you’re interested in the idea of saving some money on your utility bills, you don’t need to wait for a sweeping law overhauling the country’s energy sector. There are practical steps you can take now.
For ideas on how to do that, I spoke with Hannah Bastian, a research analyst with the American Council for an Energy Efficient Economy (ACEEE). I asked her to give me some tips that 1) are broadly applicable for many homeowners and 2) are easy to do and 3) cost little or nothing.
Granted, every home has different heating and cooling systems, different appliances, etc. So not every one of these might apply. But hopefully this list will spark at least one or two ideas that can trim your monthly energy bills.
Don’t overheat your hot water. If you’re like me and never even checked the temperature setting on your water heater, you might be using more natural gas (or propane, or electricity) than you need. If yours is set on “high,” try dialing it back a bit. Odds are your showers will still feel hot. Note also that most water heaters have a “vacation” setting that lowers the temperature while you’re away from home. That’s a no-brainer way to avoid wasting money.
Get more savings out of your thermostat. Everyone knows that turning the heat down a bit in the winter (or cutting back the air conditioner in the summer) cuts utility bills. But knowing doesn’t necessarily mean doing. A recent survey by the Department of Energy found that 40% of households set their thermostat to one temperature and mostly leave it there. That can be costly, because according to ACEEE, turning down your thermostat by one degree in the winter saves about 2% on your heating bill. Now, I’m not advising anyone to freeze for the sake of saving money. But whether you have a manual thermostat, a programmable one or a smart, web-connected one, you can shave your gas, propane or power bill by lowering the temperature a bit when you’re away or asleep at night.
Consider LED light bulbs. Light emitting diodes are far more energy-efficient than conventional incandescent bulbs, and their prices have dropped substantially. (Also, unlike compact fluorescent bulbs, they don’t contain toxic mercury.) So, if you haven’t shopped for them lately, take another look. My quick search online at Home Depot, Lowes and Amazon found plenty of LED bulbs that equal the light output of a 60-watt incandescent, use less than 10 watts of power and cost less than $3 a bulb if you buy packs of four or more. That’s more than an incandescent, but LEDs last for many years, and their energy savings will pay for their upfront cost quickly in light fixtures that you use frequently. ACEEE’s Bastian recommends buying LEDs that have the government’s EnergyStar certification to make sure you’re getting a bulb that performs as advertised. (In a future Energy Alert, I’ll take a closer look at LEDs and what buyers should know about them.)
Plug electronics into a smart power strip, which will ensure they’re completely shut down when not on, rather than in power-wasting standby mode, while still powering always-on gear such as Wi-Fi routers. New power strips even come with remote controls for easy activation. For example, you could kill power to your HDTV, Blu-ray player, stereo and other entertainment systems when they’re not in use, while still running your internet modem. Some smart power strips cost less than $30.
Change your furnace filter. If, like many Americans, you heat your home with a furnace that circulates warm air through ducts, you can kill two birds with one stone. Regularly changing the furnace’s air filter will reduce the electricity the fan uses to blow the warm air (since a clean filter creates less resistance than a dirty one), and you’ll reduce the risk of mechanical problems with the system down the road. If you have an older HVAC system, it can pay to have a technician perform a system checkup and maintenance every year or two, both to ensure it’s running efficiently and to help it last longer.
Check for drafts during the winter. Drafts waste money during summer and winter, but they’re easier to feel when it’s cold out. Some cheap weather stripping can conserve some of the valuable heat a leaky window may be costing you. And identifying drafty spots now can come in handy if you’re planning a home renovation project later: You’ll be able to point out trouble spots to your contractor.
That’s just the tip of the proverbial iceberg for energy-saving ideas. If you have suggestions that you use yourself, feel free to share them in the comments section online, or drop me an e-mail. In future issues, I’ll be looking at other strategies and technologies for cutting energy usage that consumers may want to know about.
Freshman House Rep. Alexandria Ocasio-Cortez (D-NY) and some of her colleagues have made news recently by calling for a “Green New Deal” to combat climate change. Hearkening back to President Franklin Roosevelt’s aggressive countermeasures designed to pull the country out of the Great Depression, the Green New Deal sounds bold and dramatic. Speaking at a town hall meeting in December, Ocasio-Cortez called the plan “the New Deal, the Great Society, the moon shot, the civil rights movement of our generation.”
A draft bill calls for “meeting 100% of national power demand through renewable sources … eliminating greenhouse gas emissions from, repairing and improving transportation and other infrastructure … [and] eliminating greenhouse gas emissions from the manufacturing, agricultural and other industries.” What’s more, the bill calls for achieving these goals by the year 2030.
Reactions to the proposal have been mixed, to say the least, with some environmentalists hailing the GND as the sort of bold vision that the world needs in order to combat climate change, and some critics deriding it as fanciful and hugely expensive.
How you view the GND is up to you. But forming an opinion about any proposed public policy requires some background information. In that spirit, here are a few energy-related facts to keep in mind:
The Green New Deal calls for eliminating fossil fuels from the electric industry. Currently, the U.S. gets about three-fifths of its electricity from burning fossil fuels. In 2017, the last year for which complete government data are available, the Department of Energy reports that natural gas accounted for 32.1% of U.S. power production, followed by coal at 29.9%, for a 62% combined share. The other 38% largely consisted of emissions-free nuclear power (20%), hydro-electric power (7.4%) and wind (6.3%).
Most of our electricity does not come from conventionally defined renewable power such as wind and solar. Even if you expand “renewables” to include hydropower and emissions-free nuclear, only about two-fifths of our electricity “mix” is carbon-free. So, realizing the GND’s goal would require a major reduction in U.S. electricity usage, a huge increase in wind, solar or other renewable power, or some combination of the two.
The Green New Deal calls for eliminating greenhouse gas emissions from the transportation sector. Currently, the U.S. relies on fossil fuels for at least 92% of its transportation needs. According to this handy pie chart from the DOE, gasoline powered 55% of all transport in 2017; diesel accounted for 22%; jet fuel, 12%; and natural gas, either compressed or liquefied, 3%. Another 5% came from biofuels, which theoretically could count as renewable; and 3% from “other sources,” such as electricity (which, remember, mostly comes from fossil fuels).
The Green New Deal implies eliminating fossil fuels for winter heating needs. Currently, 57% of U.S. households burn some type of fossil fuel to keep warm. Again per the DOE, 47% of households burn natural gas; 5% use propane; and another 5%, heating oil. Electricity warms 40% of American homes, via systems such as electric heat pumps. (A small slice of the population, probably folks living in very warm climates, have no heating system. Another small slice primarily burns firewood.)
Keep in mind too that most of the electric heat in the U.S. is in the South, according to DOE. That makes sense, given the region’s relatively mild winters. The colder Northeast and Midwest, where heating needs are higher, rely far more heavily on furnaces and boilers running on natural gas, propane or heating oil.
The Green New Deal also calls for eliminating greenhouse gas emissions from industries beyond energy. Chemical makers and other industries currently use more natural gas than the power sector does. Even though the U.S. is generating a record amount of electricity by burning natural gas, it uses even more gas to make plastics, chemicals, fertilizers and more. Such “industrial” uses of gas also more than double the amount consumed by residential customers, who burn gas to heat, cook, power water heaters, clothes driers and the like.
Those are some of the facts about our energy usage today and the role that fossil fuels play. Hopefully they’ll be helpful as you hear more debate emanating from Washington about the Green New Deal.
I don’t know how else to say this: Energy markets are going a little crazy. First, crude oil prices plummeted, turning an earlier autumn rally into a bear-market rout. From its high of about $76 per barrel on Oct. 3., benchmark West Texas Intermediate plunged to about $55 in only five weeks. Then, natural gas prices went haywire, with the benchmark gas futures contract leaping from about $3 per million British thermal units to nearly $5 in a span of days, only to plunge back to $4 today. What exactly is going on?
It appears that certain market expectations about future energy supply and demand are getting violently recalibrated. Oil rallied through most of autumn on expectations that the return of U.S. sanctions on Iran would crimp its oil exports at a time when the strong global economy needed more crude. But production ramped up elsewhere; the Trump administration granted temporary waivers to a few countries that buy Iran’s oil; and now there are signs that global economic growth is slowing. Suddenly, many bullish bets on crude oil needed unwinding. Oil prices fell for 12 consecutive trading days, a new record.
Natural gas prices soared when weather forecasts showed cold air poised to spread over the heavily populated Northeast and Midwest and traders suddenly noticed that the amount of gas in underground storage is low for this time of year. In a matter of days, gas prices shot up 50%, before giving back much of those gains today, when the Department of Energy reported that stockpiles grew modestly last week.
Here are the two main points that I take away from this volatility:
First, oil markets remain well supplied, largely thanks to the U.S. American oil production hit another record high this week, with output of 11.7 million barrels per day. That’s the most of any country in the world. And production should keep growing briskly next year, especially after new pipelines in Texas are completed, allowing producers to ship more crude to refineries and export terminals on the Gulf Coast. (Think about that for a moment: Texas is producing so much oil that it’s gotten difficult just to move it.)
Other countries stepped up their production in advance of the Iran sanctions taking effect, too. Just Russian and Saudi Arabian output combined more than offset the lost Iranian production. Granted, the Saudis said they will pull back, and OPEC may choose to do likewise when its members meet in Vienna next month. But that the cartel feels the need to close the taps a bit again shows that the world has plenty of oil.
Second, natural gas prices figure to be volatile throughout the winter, and the risk of sustained price hikes is real if the winter ends up being colder than normal. As with oil, the U.S. is producing record amounts of natural gas. But consumption is high, too. Utilities now generate more electricity from gas than they do from coal, and U.S. exports of natural gas are on the rise. Add in heavy demand during a sustained cold snap, and the gas distribution network will struggle to get enough gas everywhere it needs to go. Plus, extreme cold can cause gas wells to freeze up, cutting into supply when it’s needed most.
Consumers can look forward to bigger savings at the gas pump. The national average price of regular unleaded gas now stands at $2.67 per gallon, down from almost $3 earlier this fall. Prices should slip further as the big drop in oil prices filters through to the retail level. The drop in oil prices is also good news for propane and heating oil users. Prices of those two fuels started the heating season well above their levels of the prior year. And the unseasonably cold weather hitting much of the country means heavy demand. But with crude prices down, propane and heating oil should ease, too, or at least hold steady.
If you heat with natural gas, budget for higher bills than last winter. Even before this week’s spike in gas futures prices, residential prices were running higher than last year. The Department of Energy recently forecast that U.S. households that heat with gas would pay about 5% more this winter they did last year. But that’s assuming a near-normal winter. In a colder scenario, the department projects those customers’ heating bills would jump by 16%.
Still, don’t worry too much about actual shortages. Although supplies of gas in storage are below average, output will keep growing at a steady clip as energy companies get ever more efficient at tapping into America’s sprawling gas reservoirs. It’ll probably cost more than last year, but barring a new ice age, there will be enough gas for everybody to stay warm.
After more than a year in the works, President Trump’s proposal for regulating carbon dioxide emissions from the nation’s power plants is out. His plan, dubbed the Affordable Clean Energy (ACE) rule, would impose far less stringent standards on coal-fired power plants than President Obama’s Clean Power Plan (CPP), which Trump put the brakes on. Last year, when announcing several executive orders aimed at easing government regulation of the coal industry, the president declared that “My administration is putting an end to the war on coal” – a reference to his predecessor’s regulatory approach.
First, a quick rundown on Trump’s power plant regs and how they differ from what Obama tried to do:
States would be responsible for regulating their power plants’ carbon emissions, whereas Obama’s CPP would have given each state a target for reducing emissions consistent with a nationwide goal.
Owners of coal-fired plants could improve plant efficiency to keep them running longer and get more electricity from each ton of coal burned. The CPP would have encouraged utilities to use less coal and more natural gas and renewable energy.
Carbon emissions wouldn’t decline by nearly as much as they would under Obama’s plan, but are projected to decrease modestly. Trump’s EPA projects CO2 emissions will decline by between 13 million and 30 million tons in 2025, or 1.5% of the current level, compared to no regulatory action being taken.
Coal industry supporters cheered Trump’s proposal while environmentalists jeered it. National Mining Association President and CEO Hal Quinn stated that the plan “respects the infrastructure and economic realities that are unique to each state, allowing for state-driven solutions, as intended by the Clean Air Act, rather than top down mandates. It also embraces American innovation, by encouraging plant upgrades.” Fred Krupp, president of the Environmental Defense Fund, was rather more succinct, calling Trump’s proposal “a sham” that doesn’t address the risks posed by climate change.
I’ll leave those arguments to others. But what about the practical effects of Trump’s plan, assuming it survives the inevitable legal challenges?
There’s no question that the coal industry has been hurting for a long time. Back in 2005, according to Department of Energy data, coal-burning power plants supplied 50% of the nation’s electricity. Last year: Just 30%, mostly because of mounting competition from natural gas, which has become the top fuel for power generation. In 2005, the U.S. burned a massive 1.1 billion tons of coal. Last year: Just 717 million tons, the lowest figure since the early 1980s. According to the feds, in 2005 coal mining employed about 80,000 workers. By 2016, that figure had fallen to 52,000.
Coal’s struggles significantly reduced energy-related CO2 emissions in the U.S. Shifting from a coal-heavy fuel mix to one more reliant on natural gas, which emits less CO2 than coal to produce the same amount of power, has caused the utility sector’s emissions to fall by 28% since 2005, according to the EPA.
Will Trump’s regs revive the ailing coal industry? I put that question to Joe Aldina, Director of U.S. Coal Analytics at S&P Global Platts. “In the short term, this doesn’t move the needle at all” for boosting coal demand, he says, because of the competition posed by cheap natural gas. In other words, just because utilities can more easily burn coal now doesn’t mean they will if it isn’t the most economical choice.
But Trump’s rule change “will have a modest impact in the long term” because coal usage will decline by less than what would have happened under Obama’s CPP rules. Aldina thinks that coal’s 30% share of the electricity market will decline further, but only gradually over the next several years. He also notes that while the ACE regs make it easier to upgrade existing coal-fired plants to run more efficiently and generate more power, federal regulations still effectively bar building new coal plants. And there is little sign that utilities want additional coal plants, anyway.
That means that the nation’s fleet of coal power plants will likely keep shrinking. Many were retired because of Obama’s more-stringent CO2 and air quality rules, plus the competition from natural gas. The Department of Energy expects almost 10% of the nation’s remaining coal-fired generating capacity to shut down between now and 2020. Utilities can’t build new plants (even if they wanted to), so U.S. coal consumption will probably continue slipping.
As you may have heard, international trade has become something of a heated issue. President Trump left last weekend’s G7 meeting in Canada angry over the protectionist policies of some of America’s closest allies, which he emphasized by refusing to endorse the group’s written statement on shared economic, trade and environmental aspirations. Leaders of the other G7 members – the world’s seven most advanced economies – were none too pleased themselves, blaming Trump for what they viewed as undue hostility and breaches of diplomatic protocol.
It’s a fight I’ll leave to others. Reasonable people can disagree over how fairly or unfairly U.S. exports are treated by other countries. But I will note that, when it comes to foreign sales of U.S. energy products, the future looks very rosy.
Exports of American oil, gas and refined fuels are already booming. Remember back in 2006, when President George W. Bush lamented that American was “addicted to oil,” much of it sourced from abroad? At the time he issued that warning, net U.S. oil imports—the difference between what the country imported and what it sold abroad—totaled 10 million barrels per day. Flash forward to today, and net imports have been nearly halved, to a range of 5 to 6 million barrels per day, depending on the time of year.
Soaring domestic production is the main reason that the U.S. has been “breaking” its addiction to foreign oil. But America isn’t just producing more crude; it’s exporting more, too. Crude exports have jumped from practically nothing at the time of Bush’s speech to about 2 million barrels per day. Congress lifted the decades-old ban on most crude exports in 2015, largely because domestic producers were pumping more light, sweet crude oil than U.S. refineries could process. Many overseas buyers are eager for that type of oil. And U.S. crude tends to sell at a discount to Brent, the global oil benchmark, making it even more attractive to foreign refiners.
Exports of refined fuels are going even stronger than sales of crude itself. In fact, America is a net exporter of gasoline, diesel and other fuels. Net exports of refined petroleum products hit a whopping 3.5 million barrels per day last week, according to the Department of Energy. Back when Bush warned about being addicted to foreign oil in 2006, the U.S. was a net importer of refined products, to the tune of more than 2.5 million barrels per day.
Where do all those barrels go? Mexico is the biggest buyer, followed by Canada and then China. G7 members Japan, Italy, Great Britain and France are sizable customers, too. (See a breakdown of U.S. fuel exports by destination here.)
What does this all mean for the U.S. trade deficit? At the time of Bush’s 2006 State of the Union address, oil and refined fuels accounted for 35% of the total trade deficit. By April of this year, that figure had fallen to just 10.5%, according to the Census Bureau.
Natural gas makes the trade deficit look even better. Long a net gas importer, America became a net exporter last year. And those exports are bound to keep growing as domestic gas production rises and more of that bounty flows by pipelines to Mexico and Canada, and on ships in liquefied form to customers all over the world.
If you’re hitting the road this holiday weekend, buckle up for the highest gas prices in several years. AAA’s website reports that the national average price of regular unleaded gas has climbed to $2.96, the highest level since late 2014. (Of course, some parts of the country are already paying quite a bit more. The national average encompasses a wide range of prices.) A year ago, the price at the pump averaged a much more wallet-friendly $2.37 per gallon, according to AAA.
And prices probably aren’t done climbing. Last month, I warned that the national average was likely to reach $3 this spring. That likely will hit Memorial Day weekend. Crude oil prices continue edging up, but such increases generally don’t reach the pump until a week or two later.
Drivers in the West have it worst, according to AAA. In California, regular-grade gas averages a whopping $3.72 per gallon, the highest in the country. Seven Western states are averaging more than $3. The Northeast isn’t faring much better; five states there are paying $3 or more, as are three Great Lakes states (Michigan, Indiana and Illinois).
Prices are far lower in the South. Mississippi drivers enjoy the cheapest gas—an average of $2.64 per gallon. Neighboring states are similarly low.
But there is some good news: The price gains may be nearly over. Jeff Lenard, vice president of strategic industry initiatives at NACS, a trade association that represents convenience stores, says that prices tend to rise in late winter and peak around now. Whether that happens this year depends on what crude oil prices do. I believe that the rally in oil prices is almost over. If so, gasoline prices should peak soon and maybe even retreat slightly.
Even so, gas prices are certain to remain higher than they’ve been the last few years. The national average price actually dropped below $2 per gallon in early 2016 and has mostly remained closer to $2 than $3 since. Consumers no doubt enjoyed paying less at the pump. Many folks have been buying pickup trucks and SUVs instead of cars, partly because they aren’t worrying about fuel economy. And in general, spending less on a fill-up leaves money for other purchases.
A recent NACS survey shows that consumers don’t plan to cut back on driving this holiday weekend just because gas prices are up. But many respondents do plan to eat out less or cut back other spending. Gas prices aren’t necessarily the culprit, but Lenard notes that consumers “just don’t feel as good” when gas goes up. And lately, there’s been a “daily drumbeat” of news about higher gas prices: Something motorists are reminded of every time they pass their local station.
For convenience stores that sell gas, this is particularly concerning when it comes to the roughly 25% of customers who pay cash. Lenard says that those shoppers tend to allocate a fixed amount to spend at the convenience store, whether on gasoline or snacks or drinks. If filling up takes more of that cash, sales of everything else suffer. Convenience stores make only a nickel of profit per gallon of gas they sell; they’d rather you buy a sandwich or a soda than a gallon of regular.
With the overall economy doing well and summer arriving, consumer spending will likely continue at a brisk clip, despite higher fuel costs. But merchants everywhere are no doubt rooting for pump prices to level off before their customers start feeling real pain.