To understand why oil prices are high today, you have to go back two years, to the early days of the pandemic.
Oil prices hit the floor in April 2020. In fact, they fell right through the floor. For a while, oil producers had to pay companies to take oil off their hands. One day, the price in Kansas even hit a negative $47 a barrel.
Some small oil companies went under. In Kansas alone, companies took almost 5,000 wells off-line and production plummeted.
But between then and now, the price of oil has increased about $160 a barrel.
“It’s probably the most dramatic price swing in the history of the oil business,” said Mickey Thompson, past president of the Oklahoma Independent Petroleum Association. “And that’s not good for anybody.”
With the ban on Russian oil imports, domestic crude is now selling for about $110 a barrel. That, of course, isn’t good for consumers, who’ve seen gasoline prices break records.
The pain falls especially hard on lower-income workers, who often drive older cars miles to work each day and spend more of their paychecks filling their tanks. It’s sparked demands from fossil fuel users and politicians to get more domestic oil to consumers — as if oil companies can just turn the flow back on.
“There is no spigot,” Thompson said. “Wells capable of producing crude oil and natural gas in this country are producing at close to maximum capacity.”
But oil companies, especially smaller ones, are having a tough time expanding production.
“They’re having trouble getting pipe. They’re having trouble with transportation. They’re having trouble finding crews,” said Dan Naatz, executive vice president of the Independent Petroleum Association of America.
Oil companies have been trying to scale up for months now, and that’s made basic supplies of the trade, like piping, both scarce and expensive. And pandemic-related shipping problems have made just getting supplies from factories to the oil fields a major obstacle. On top of that, there’s a labor shortage.
“Labor challenges are at the top of the list,” said Ed Cross, president of the Kansas Independent Oil and Gas Association.
Small oil Kansas companies cut as much as a quarter of their employees in the lean days of 2020, Cross said. Those are skilled, technical, often physically demanding jobs, so staffing up again is another major hurdle.
“It’s a busy time and we're seeing production starting to recover, but we're a long way from where we were before the COVID pandemic,” Cross said.
In Kansas, production is down almost 16% from 2019, when gas and oil prices were much lower. It’s hard to predict how long it will take just to get back to 2019 domestic oil production levels, but most of the experts say that won’t happen until next year, at best.
Meantime, Thompson said, consumers and politicians are going to have to show some patience as everyone tries to work through the next few months.
“You need to understand that nobody in this country, nobody — not the oil and gas industry, not the federal government, not the regulators, not the banks — nobody's the enemy on this deal,” Thompson said.
“Putin is the enemy and he and his army and his military are creating the situation," he added. "And we need to offer some grace to ourselves and our neighbors and people who are doing the best they can to alleviate the pain.”
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