The United States has plenty of oil. Still, gasoline prices continue to rise.
Although the United States is nearly self-sufficient in oil, gas prices remain affected by Iran’s stranglehold on oil shipments in the Strait of Hormuz.
The United States exported oil at record levels in April even as gas and oil prices remained high, rushing to fill a global supply gap amid the Iran war.
Exports in April averaged 5.3 million barrels per day over a four-week period, up from 3.8 million barrels per day at the end of March, according to weekly export data from the U.S. Energy Information Administration.
The week ending April 24 was notable, with exports surging to 6.4 million barrels per day, but falling back to 4.8 million barrels per day the following week. Although crude oil exports have fallen by more than 2 million barrels per day, they are still significantly higher than the roughly 4 million barrels shipped overseas in the same period last year.
“This is a really big week of gains,” said Brian Presto, an economist at Resources for the Future. “The week ending April 24th will be the first week in American history that the United States has been a net exporter.”
The surge in U.S. exports reflects how oil markets are adapting to supply disruptions caused by the closure of the Strait of Hormuz after the U.S. and Israeli attacks on Iran that began on February 28.
Clayton Seagle, senior fellow for energy security at the Center for Strategic and International Studies, said market participants are looking for ways to connect supply and demand amid historic supply disruptions. “Oil markets are operating efficiently even during the crisis.”
The war cost the world 13 million barrels a day from the Middle East for more than two months, Seagle said. Regions that rely heavily on oil in the Middle East, especially Asia, are facing supply shortages.
Therefore, the United States, the world’s largest oil producer, has an “opportunity to temporarily fill the gap in global oil supplies.”
Why not store the oil here?
Greg Upton, executive director of the Energy Research Center and a professor at Louisiana State University, said U.S. producers are better off exporting oil because foreign buyers are currently paying more than domestic buyers.
Since the start of the war, the United States has exported more than 280 million barrels in nine weeks, depleting the country’s strategic oil reserves in the process. The Department of Energy has released about 23 million barrels from reserves since late March, part of the 172 million barrels the DOE is authorized to release by President Donald Trump. As of May 1, reserves were approximately 392 million barrels.
However, oil and gas prices are still rising.
Brent crude oil, the international benchmark, was trading above $100 per barrel as of 4pm EDT on May 6th. West Texas Intermediate crude oil from U.S. producers was priced at about $95.
However, that may change at some point. If the use of WTI increases and demand for Brent declines, the gap between the two prices could narrow, making WTI less attractive. More importantly, the cost of shipping Brent from the Gulf to places like Asia and Europe could start to rise, said Rob Wilson, president of energy consultancy East Daily Analytics.
Experts say having more oil in the U.S. doesn’t necessarily mean lower domestic gasoline prices.
Seigl said the price of oil, which is used everywhere in the world, is set globally. “If supply is disrupted anywhere, prices will rise everywhere.”
The current national average gas price is $4.54 per gallon, according to the latest AAA data.
Even if the oil stays in the U.S., domestic refineries are already operating near maximum capacity. “No matter how much oil we have here instead of sending it overseas, we’re not going to be able to make more gasoline here,” Siegle added.
What’s next?
Experts say whether U.S. gas prices continue to rise or start falling will depend on how long the turmoil in the Middle East lasts.
“Unfortunately, we’re probably heading back to the all-time highs for pump prices across the country that we saw in 2022, just over $5 a gallon,” Seagle said.
In the summer of 2022, the average gasoline price in the United States exceeded $5 per gallon due to Russia’s invasion of Ukraine.
As the U.S. continues to supply oil to countries around the world to fill energy gaps created by wars, “that’s just not sustainable,” Siegle said. “If we want to get fuel prices right, we need to restart the flow of exports to the Middle East.”
But U.S. companies may also increase supply.
On May 5, President Donald Trump praised the “huge progress” toward a deal with Iran. The global oil market reacted to this, with prices falling sharply. Still, the conflict has so far made no progress, and the longer the conflict drags on, the more incentive U.S. producers will have to increase production, Wilson told USA TODAY.
Shale producer Diamondback Energy announced on May 4 that it would ramp up both its hydraulic fracturing and drilling operations, calling the price increases a “catalyst.” Wilson thinks other producers may follow suit.
At the end of the day, U.S. consumers will pay the price for what’s happening in global markets. “Whether that’s good or bad depends on global events,” said Presto of Resources for the Future.
On the other hand, if the dispute lasts long enough, Upton said, U.S. lawmakers may come up with policies that protect American consumers. As recently as 2016, U.S. producers were not allowed to export oil. He pointed out that the ban was only lifted because domestic refineries could no longer cope.
