‘Drill, Baby, Drill’ Could Keep America’s Gas Prices Low

It appears that the Trump administration plans to let oil companies drill in parts of America and offshore areas. This will expand the footprint of where these companies can operate. The new president even wants to take over Greenland. This is, in part, because of crude oil, some of which is in the ocean around it. If supply becomes more plentiful overall, one group that will benefit is America’s car and light truck owners. The trend could also hurt electric vehicle (EV) sales.

More oil inventory could benefit Americans in another way. It is a hedge against energy price inflation, particularly as artificial intelligence (AI) service farms take up more electricity.  Some energy facilities still use fossil fuels, and millions of homes are heated by oil. Tortoise senior portfolio manager and managing director Rob Thummel recently commented to Yahoo, “But the goal will be to keep inflation moderated, and keep oil and natural gas prices at moderate levels so that they just don’t get out of control.”

Americans have become used to $3 a gallon gasoline as crude has traded at about $70 a barrel. However, a perceived shortage when the Ukraine invasion by Russia began pushed crude above $100, and the average price for gas nationwide rose above $5. At the time, the consumer price index (CPI) was rising at over 8%. Energy is a major part of the index. A higher CPI usually means lower household discretionary spending, which usually undermines gross domestic product.

America was the largest producer of oil in December, topping any nation in any month in history. Additional supply will keep that production high, even if other suppliers like OPEC+ raise the price of their crude exports.

One victim of more drilling and lower gas prices is EVs, the sales of which have already faltered in the United States. There has been an assumption that EVs are less expensive to operate than gasoline-powered cars. However, the lower gas prices are, the less likely it is that car buyers will take that into consideration.

The American economy largely runs on oil and gas. It appears the inventory of these will be plentiful.

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