The People of America's Oil and Natural Gas Indusry

Energy Today - March 9, 2011

Rayola Dougher

Rayola Dougher
Posted March 9, 2011

AP: Gas prices are about more than just oil: Unlike an iPhone or a pair of jeans or a Big Mac, oil and gas are commodities, and their prices can change every second at the New York Mercantile Exchange and other trading hubs. Those far-off changes affect the cost of the next day's commute. Sellers of commodities, like gas station owners and refineries, price their product based not on what it costs to produce it, but on what it costs to replace it. Stations like the Plainfield BP, which gets shipments of gas several times a week, must constantly adjust their prices to keep up with the changing costs of their shipments. Oil is the biggest factor in gas prices. It accounts for 50 to 70 percent of the cost. Recent upheaval in the Middle East and strong demand for oil around the world have pushed oil prices over $100 a barrel for only the second time in history. But the price of a gallon of gas at the pump rises, and, yes, falls, for a number of other reasons. Oil prices can be moved by geopolitics, the value of the dollar, extreme weather or Chinese demand. Gas prices can be moved by oil prices, refinery problems or even weather that might keep drivers at home. The Hill: The unintended consequences of Dodd-Frank: When a London museum containing rare teddy bears stepped up security by hiring a Doberman pinscher guard dog, it learned about the law of unintended consequences the hard way. The dog ate the teddy bears - hundreds of them - including one formerly owned by Elvis Presley. The law of unintended consequences is a constant threat to businesses, and Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act is a perfect example. Section 1504 imposes a requirement on oil and natural gas companies listed with the U.S. Securities and Exchange Commission (SEC) to publicly disclose detailed information about payments made to foreign governments in the course of their overseas operations. This could mean companies would be required to report individual payments on every single well, potentially exposing confidential, proprietary business information to global competitors.

The Dallas Morning News: Oil execs warn of shortages if industry cannot drill: Many international oil experts aren't worried that unrest in the Middle East and northern Africa will cause oil shortages. Instead, they worry that a lack of drilling around the globe could eventually cause shortages.They have some suggestions for world leaders. Let oil companies drill, and consider buying more of another product that the industry offers: natural gas. "An energy crisis is coming, likely triggered by oil," said John Hess, chief executive of Hess Corp., at the CERA Week energy conference Tuesday. When the price hit $140 a barrel in 2008, that "was not an aberration. It was a warning." He said the crisis could come in five to 10 years.

The Wall Street Journal: Lawmakers Caution Against Opening U.S. Strategic Petroleum Reserve: Lawmakers of both parties cautioned Tuesday against opening U.S. petroleum reserves in an effort to lower gasoline prices, as Washington continued to wrestle with how to respond to the impact of Middle East unrest on the global oil market. White House Council of Economic Advisers Chairman Austan Goolsbee said rising oil prices, fueled by the unrest in the Middle East, posed a threat to the economy, which has now entered a growth phase after nearly plunging into a depression during the financial crisis. But Mr. Goolsbee said the administration would need to determine whether there was a large international supply disruption before opening the stockpile. The strategic reserve was set up to address possible supply disruptions, he said, and "that's mainly the criteria we use" to determine when to tap the supplies. Lawmakers on both sides of the aisle Tuesday urged the president to steer clear of the Strategic Petroleum Reserve until its use was "absolutely necessary," countering earlier calls by some Democrats to open the supplies in advance of the summer driving season.

Additional Resources:

The Washington Post: A crude idea: Tapping the Strategic Petroleum Reserve to ease gas prices

Hot Air: The strategic reserve we're not willing to tap

Bloomberg: U.S. Crude Oil Supplies Increased Last Week, API Report Shows

The Hill: Hoyer opposes tapping oil reserves

The Hill: With gas prices as incentive, bipartisan energy bill 'gang' could be revived

ABOUT THE AUTHOR

Rayola Dougher is senior economist at The American Petroleum Institute (API), where she analyzes information, manages projects and develops briefing materials on energy markets and oil industry policy issues. She is the author or co-author of economic research studies covering a diverse range of topics including crude oil and petroleum product markets, gasoline taxes, energy conservation and competition in retail markets. In addition to testifying before federal and state legislators, she has participated in numerous newspaper, radio and television interviews on a wide range of issues affecting the oil industry, including crude oil and gasoline prices, industry taxes and earnings, exploration and production, and refining and marketing topics.

Prior to joining API, Rayola worked at the Institute for Energy Analysis where her research focused on carbon dioxide related issues and international energy demand and supply forecasts. Rayola holds a Masters degree in Economic Development and East Asian studies from the American University and a degree in History and Political Science from the State University of New York at Brockport.