Rumors are swirling about the possible impact of the oil spill crisis in the Gulf of Mexico, including speculation that fuel prices will breach $4 per gallon. However, Harry Cooney, a senior energy analyst for the farmer cooperative Growmark, says the spill has not yet affected the oil markets one way or another.
The oil well at the bottom of ocean, 40 miles off the coast of Louisiana, has been spewing out crude oil for 59 days now as a result of an oil drilling rig explosion. British Petroleum or BP, the oil company that owns the well, so far hasn't been very successful in its ongoing attempts to try to stop the flow. The environmental damage the well is causing to the ocean and U.S. shoreline continues as millions of gallons pour into the ocean each day.
Some of the oil is being captured by the temporary collection device BP has put on the well, but the mechanism isn't 100% effective. The official estimate by the U.S. government is currently that a range from 1.5 to 2.5 million gallons of crude oil per day is coming from the well and entering the ocean.
Despite the reassurance of steady fuel prices from energy market specialists such as Cooney, many farmers and other people still wonder why historically the mere threat of a hurricane causes fuel prices to skyrocket, and yet an oil spill of the magnitude in the Gulf has not caused a price spike.
Why haven't prices reacted to this calamity like they react to hurricanes?
"Hurricanes cause oil rigs to actually shut down all along the coastline, from Alabama and Louisiana on west to Texas," Cooney explains. "When you have to shut down production this affects the supply of oil, which leads to the change in fuel prices."
An important economic point to remember when analyzing market prices is in order to influence price, there must be a change in supply or demand.
"In reference to the oil spill, demand has not changed, and supply is not being limited," Cooney adds. According to the U.S. Department of Energy, the U.S. imports more than 3 billion barrels of crude oil per year. Since the oil spill in the Gulf of Mexico has had no effect on crude oil import shipments, there has been a steady supply of crude oil.
One of the resources aiding the supply of crude oil to the U.S. is the Louisiana Offshore Oil Port (LOOP). It is the only port in the United States capable of offloading crude oil from deep draft oil tankers. The LOOP is connected to over 50% of the United States' oil refineries and has offloaded over 7 billion barrels of foreign crude oil since its inception in 1972.
Deep draft oil tankers are still making import and export shipments despite the oil slicks in the Gulf of Mexico. The LOOP allows the boats to unload off-shore, so they do not need to be oil-free since they are not calling at a shore-based port.
In Cooney's mind, the main issue surrounding this spill is not an increase in fuel prices, but the environmental damage it is causing. "No one knows when the oil will stop leaking, and how much damage will have been caused when it is done," he adds. As for those concerned about high fuel prices in the summer traveling this season, Cooney says unless the LOOP is shut down for some unforeseen reason, the U.S. will not witness drastic gas price increases due to the oil spill.