Gasoline Prices Going Up
Gasoline consumption in the U.S. is projected to have increased by 0.7 percent in 2007, followed by 1 percent growth in 2008. The average prices per gallon of gasoline hit $3 per gallon in November 2007 (it was $2.28 in 2006). Gasoline prices are expected to average $3.21 per gallon or 40 cents above the 2007 price. The monthly average gasoline price is projected to peak near $3.50 per gallon this spring. The Energy Information Administration also notes there is a significant possibility that prices during some shorter time period, or in some region or sub-region, will cross the $4 per gallon threshold.
Break down of gas prices
Fuel for Thought
Texas gains slightly from soaring oil prices, but effects vary with region and industry.
This year’s soaring petroleum prices and oil company profits will net positive economic results for Texas, says Gary Preuss, revenue estimator for the Texas Comptroller of Public Accounts.
“The price of gasoline has not kept up with the recent spikes in the price of oil,” Preuss says. If the gasoline prices were in line with $90-per-barrel prices, consumers would be paying about $4 a gallon, having a rather heavy impact on Texas consumers, he says.
Outlook for Texas
Since Texas’ concentration of petroleum businesses is five times higher than in the rest of the United States, it’s only natural to think that when energy prices are high, the Texas economy will boom. Such was the case in 1982 when Texas produced 25 percent of the nation’s oil. But in 2002 Texas’ oil and gas industry dropped to about 8 percent of state’s economy. It climbed to more than 15 percent by 2007. Now oil has less of an impact than it did in 1982, and a slower national economy means Texas is more likely to slow too.
As of March 2008, 881 drilling rigs were operating in Texas, according to Baker-Hughes’ weekly averages. Today, the rigs are collecting record-high day rates.
Average land rig day rates have nearly doubled from $7,875 in the first quarter of 2002 to $13,200 in third quarter 2007, according to Land Rig Newsletter by RigData.
Transocean, one of the largest oil rig companies in the world, has had rates for its Deepwater Pathfinder ship go from $190,000 per day in its previous contract to $395,000 as of July 2007.
Tax Revenue Chart
Oil Production Tax Revenue (millions of dollars)
Source: Texas Comptroller of Public Accounts
Oil-driven cities such as Midland and Houston can expect their economies to flourish in light of higher energy costs. Midland’s unemployment rate as of January 2008 was at 2.9 percent - the lowest in the state.
Preuss says employment in Texas’ natural resources and mining industry (which is mostly oil and natural gas) is expected to peak in 2008 to more than 209,000 jobs.
The not-so-fortunate effects of oil prices, high shipping and energy costs, will be felt along the I-35 corridor economies since they have little petroleum-based industry, says Preuss. The Lower Rio Grande Valley and the Panhandle will not experience gains or losses to their overall economies.
The transportation industry is likely to take the hardest hit from the higher petroleum prices. Trucking and airline companies will likely pass higher fuel costs to the consumer. Airline employment in Texas is 64,500 in January 2008, with a peak this century of 79,200 in August 2001. Truck transportation employment is still up 3.1 percent (January 2007 to January 2008), because of the strength of exports with Mexico. The Texas travel industry also is strong, particularly with Texans more likely to travel within the state.
Texas hit a five-year high of 145 million overnight visitors in 2006 and the outlook is good for 2008. The majority, 67 percent, of non-Texans traveled here by auto, driving 501 miles or more, 18 percent traveled 301-500 miles. FN
Supply and Demand
The EIA predicts onshore U.S. oil production will hold steady through 2030 at 2.9 million barrels a day. Deepwater oil production in the Gulf of Mexico is projected to increase from 840,000 barrels per day in 2005 to a peak of 2 million barrels per day in 2015 and then fluctuate between 1.8 and 1.9 million barrels per day through 2030, according to the 2007 Annual Energy Outlook report.
Demand for oil in Brazil, Russia, China and India is expected to remain high, fueling the projected price point. In the short term, total domestic petroleum consumption is projected to increase by 1 percent in 2008 to 21 million barrels per day.