Last month the Energy Information Administration reported that retail gasoline prices heading into Memorial Day weekend averaged $2.40 per gallon nationally. This marked the second-lowest price ahead of the Memorial Day weekend since 2009.
The EIA included a graphic displaying gasoline prices over the past decade.
Unmentioned in the story was the primary reason that Americans are paying much less today for gasoline than they were just a few years ago. But let’s take a trip down memory lane to review.
Starting in the first half of the previous decade, oil prices went on a steady climb as crude oil and finished product imports topped 12 million barrels per day (BPD). The average price of West Texas Intermediate (WTI) rose every year from 2001, and by July of 2008, it rose above $140 per barrel (bbl). The price would get a brief reprieve in response to the 2008 financial crisis, but by 2011 the price returned to the $100/bbl level.
But this was also when a surge of new oil production was coming online in the U.S. Between 2008 and 2015 U.S. crude oil production rose by nearly five million BPD. Production grew faster than demand, and prices began to weaken in 2014. The decline in price was exacerbated in 2014 when OPEC decided to defend market share, pumping another two million BPD into an already oversupplied market.
Without fracking, U.S. net imports would likely still be over 12 million BPD, and we would be paying $100/bbl to OPEC. In 2008, the first year that the shale oil boom caused U.S. production to begin rising, U.S. net imports had declined to 11 million BPD (down from 12.5 million BPD in 2005). The average price of Brent crude (the benchmark for many internationally traded crudes) was $97.26/bbl. The U.S. economy paid $390 billion for crude oil and finished product imports in 2008.
By 2016, the average price of Brent crude had fallen to $43.55, and net imports had fallen to 4.9 million BPD. In 2016 the U.S. paid out $78 billion for oil and finished products — a decline of $312 billion. There are multiple factors behind these savings for U.S. consumers, but the primary reason is the huge surge of U.S. oil production brought on by fracking.
Gasoline is where most consumers are reaping the benefits. The national average price for unleaded gasoline on Memorial Day was about $1.30/gal cheaper than it was just three years ago. U.S. consumers use about 140 billion gallons of gasoline a year, which means consumers are saving about $180 billion a year just on gasoline.
Add in the savings in diesel, jet fuel, heating oil, and the 27.5 trillion cubic feet (Tcf) of natural gas we used last year, and fracking is easily saving Americans several hundred billion dollars a year on their energy costs. That’s money that would have mostly gone overseas to OPEC, but that is now freed up for consumers to spend or save as they wish.