Crude Oil and Gasoline Prices Rise as Demand Increases

Crude oil and gasoline prices have rebounded from lows recorded in mid-2020 created by an economic recession amidst the global Covid-19 pandemic.

Oil prices on the New York Mercantile Exchange have risen from $16 per barrel in April 2020 to reach $65 this week, and they have increased 38% from $47.62 on Jan. 1.

U.S. gasoline prices have followed rising from $2.336 on Jan. 1 to $2.857 (22.3%) on March 8, according to the Energy Information Administration (EIA).

AAA reported the average price for regular gasoline in Texas was $2.531 on March 8. The average price in North Texas and West Central Texas was a little higher with both posting an average of $2.599, but East Texas was $2.533, which is more in line with the statewide average.

Crude oil prices suffered throughout 2020. Demand for petroleum products plummeted as economic activity collapsed. An oversupply of oil existed worldwide.

Members of the Organization of Petroleum Exporting Countries (OPEC) and some non-members, such as Russia, agreed to cut their oil production in an effort to bring supply more in line with demand and to firm price.

OPEC met again last week and extended the cuts through April, which will result in an estimated 7 million barrels per day (7%) of reductions from the global market.

Even though U.S. crude oil production peaked at 12.8 million barrels per day (b/d) in January 2020, production averaged 11.3 million barrels per day (b/d) in 2020, down 935,000 b/d (8%) from the record annual average high of 12.2 million b/d in 2019, according to EIA data. The 2020 decrease in production was the largest annual decline in the U.S., EIA stated.

Low oil prices and a collapse in drilling resulted in the production decline.

The declining prices led crude oil operators to shut in wells and limit the number of wells brought online, lowering the output for the major oil-producing regions, EIA stated.

In 2020, more crude oil was produced in Texas than in any other state, accounting for 43% of the national total. Crude oil production in Texas averaged 4.87 million b/d in 2020, a decrease of 205,000 b/d (4%) from the record high of 5.07 million b/d set in 2019.

The Federal Offshore Gulf of Mexico saw the largest decrease in crude oil production, falling by 245,000 b/d (13%) to an annual average of 1.65 million b/d in 2020. Several hurricanes and tropical storms struck the Gulf of Mexico last year, causing operators to evacuate platforms and shut in production.

North Dakota had the second-largest decrease at 242,000 b/d (17%) to an annual average of 1.18 million b/d.

Oklahoma had the largest percentage decrease at 19%, falling to an annual average of 469,000 b/d.

The largest statewide increase in crude oil production in 2020 was in New Mexico, where it increased by 133,000 b/d (15%) to a record annual average high of 1.04 million b/d. The growth in New Mexico came from the Permian Basin, which spans parts of western Texas and eastern New Mexico.

Alex Mills is the former President of the Texas Alliance of Energy Producers.