I read an online Northside Sun Opinion article today written by Patrick Taylor. He lists several causes of our current annual inflation rate of over 8 percent. His list includes high oil prices, clogged supply chains, wage pressure, pent up demand, and a flood of money in the economy. His list of causes for the current inflation rate are all reasonable assumptions. Where Mr. Taylor’s argument departs from reality is laying the blame of higher oil prices on the Russian invasion of Ukraine. As can be seen on the graph, the price of crude oil has been steadily rising since it hit an average price below fifteen dollars in April of 2020.
Russia did not invade Ukraine until February 24, 2022. The Wall Street Journal reports that in April of this year, Russia was still exporting 8.1 million barrels per month which is close to prewar levels. This number may very well change in the near future, but the point is that the war in Ukraine is not the major factor of high oil prices at this time. The true swing producer in the world is the United States. In September of 2008 U.S. crude oil production got below 4,000,000 barrels per day. By November of 2019, due mainly to drilling and fracking for oil in shale formations, production more than tripled to just under 13,000,000 barrels per day. This increase is greater than Russia’s total exports. During most of the fracking boom the producers were losing money due to low prices of crude oil. The U.S. crude production has dropped and is now holding steady at right above 11,000,000 barrels per day.
The oil industry has been burdened by extremely strict and often ridiculous regulations over the past 50 years. Right now, however, the U.S. government has declared all-out war on the petroleum industry. The increased regulations are causing once commercial wells to be shut down because the new rules make them uneconomical. In addition, many banks are dropping oil companies as clients. This change in attitude happened well before the Russians invaded Ukraine. It was also reported today in the Wall Street Journal that “The Biden administration cancelled plans to auction drilling rights in three regions off the U.S. coastline later this year.”
The federal government is making it extremely difficult to drill and produce oil. Without a change we will see the U.S. production go down and our dependence on foreign oil go up. The cost will most likely go up also.
Mart Lamar is a Northsider and is a petroleum engineer at McGowan Working Partners.