The Lowdown on High Gas Prices

Keith Kohl

Written By Keith Kohl

Posted March 2, 2012

Editor’s Note: To see how deep we currently drill for oil, click here…


I stopped to fill up my tank on my way into the office this morning, and when the pump reached $30, I felt a little uneasy…

I became increasingly uncomfortable as it ticked past $40.

That discomfort turned to anger when it finally stopped just above $51.00.

For most people, buying gasoline is an increasingly painful experience.

With gasoline prices averaging more than $3.70 per gallon in the United States, it’s difficult not to cringe every time you lift the nozzle from its cradle and watch the dollars and cents roll past.

But the truth is I should feel lucky to have paid only $50 to fill my tank…

My readers on the West Coast are used to paying over $4 a gallon.

gas price mapAnd if you think the pain at the pump is bad now, just wait until summer.

The summer driving season is right around the corner, and I have a feeling we’ll be wishing gasoline cost $4/gallon come August.

For all my disdain for shelling out that much to fill up my tank, I was relieved not to be the guy at the pump next to mine this morning — and not because he had a higher bill…

No, it was the fact that once he topped off, he pulled his truck around to fill up a second tank on the other side!

The string of expletives this poor guy muttered while filling up this second tank wasn’t fit for a sailor.

He was blaming everything under the sun for high gas prices and the beating his wallet was taking…

Fortunately, we know better.

Scapegoats Abound

what we pay for gas

Who’s to blame?

Who’s the main culprit here?

It’s simple enough to see what goes into the price of a gallon of regular gasoline (see right).

According to the Energy Information Administration, 76% of the price of regular gasoline is from crude oil.

So why aren’t we buying into the fact that it’s just the speculators driving up oil prices?

Once you peel back the veil behind U.S. oil production, you’ll understand why prices are expected to average $112 a barrel this year, as well as that the oil being pumped today isn’t the cheap, easy-to-get-to stuff we’re used to…

Behind the Production Curtain

It’s no secret that oil production here in the States is rising.

It’s been a major talking point for both the media and politicians.

And yet, it’s still a challenge to find someone in either the media or politics that has a real sense of what’s going on.

Yes, production is rising. Since 2008, our domestic output has jumped by more than 700,000 barrels per day, or about 14%.

If you’d like to see how small that bump actually is, look no further:

us oil production

Now, depending on who you’re listening to, the reason for this varies greatly…

First, understand that a large percentage of that increase is due mostly to just two states: North Dakota and Texas.

North Dakota managed to tack on 246,000 barrels to their daily output, while Texas’ output grew by 348,000 bbls/day.

These two states combined account for 83% of our 700,000 bbls/day increase over the last several years.

But there’s a glaring problem in all of this…

The shale oil that has been added to the mix since 2008 comes with a price.

It costs millions to drill these wells. And no matter how great the news is that production is heading higher, these costlier barrels aren’t cheap.

Our conventional crude supply continues to dwindle while it’s being replaced with more non-conventional sources: shale oil, deepwater wells offshore, and bitumen from the oil sands resource in Alberta.

Simply put, it’s taking more energy for us to extract each barrel of oil than ever before.

As to who gets all the credit for the good news, you might want to hold your applause for the president…

Interestingly, oil and natural gas production federal lands declined 40% during the last decade.

So the good news isn’t coming from the White House, but rather the private and state lands in areas like North Dakota.

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Until next time,

Keith Kohl Signature

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

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