Gas Prices Are Spiking. So Why Aren’t U.s. Oil Companies Drilling More?

Gas prices are spiking. So why aren’t U.S. lipid companies drilling more?

As nan U.S. and Iran conflict for power successful nan Strait of Hormuz, U.S. state prices are continuing to rise—and accumulation mightiness not support up

By Stephanie Pappas edited by Andrea Thompson

Tetra Images/Getty Images

The closure of nan Strait of Hormuz has trapped 1 5th of nan world’s lipid proviso successful nan Persian Gulf, a situation that nan World Bank Group predicts will spike power prices by 24 percent successful 2026—the biggest summation since Russia invaded Ukraine successful 2022. And nan U.S. is not immune. Despite being a awesome shaper of lipid and gas, home accumulation won’t thief curb rising prices astatine nan pump—currently astir $4.50 per gallon nationally—any clip soon.

Spikes successful lipid and state prices are causing headaches for consumers fueling up their cars aliases paying for much costly deliveries, but U.S. lipid and state companies are seeing windfall profits. That mightiness look for illustration an inducement to drill more, but lessons learned from erstwhile lipid gluts and geological hurdles to drilling more—not to mention ongoing uncertainty—tell a much analyzable story.

“This volatility conscionable really messes pinch people,” says Trey Cowan, an power finance expert astatine nan power marketplace study patient Institute for Energy Economics and Financial Analysis.

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Oil and state spell done repeated boom-bust cycles. Price is 1 driver of really overmuch home producers drill, but it’s not nan only one: Historically, exertion has played an moreover larger domiciled successful really overmuch lipid is pulled from nan ground. For example, nan world mean value of lipid per tube spiked astir 300 percent by 1974 because of nan 1973 lipid embargo, successful which nan Organization of Arab Petroleum Exporting Countries (OAPEC) banned exports to nations that supported Israel successful that year’s Yom Kippur War. U.S. producers amped up activity, but production ne'er surpassed nan highest deed successful 1970, and drilling exertion past couldn’t entree nan hard-to-reach deposits that were left. In nan precocious 1990s and early 2000s crude lipid prices roseate alongside those of different commodities. But U.S. home accumulation continued to descent until caller drilling exertion unlocked a roar successful shale lipid accumulation by nan 2010s.

Amanda Montañez; Source: U.S. Energy Information Administration (data)

Deposits that were antecedently excessively difficult to scope could beryllium exploited because producers could now drill horizontally done stone layers and past stimulate nan travel of lipid by hydraulic fracking. But nan “shale revolution” showed really fickle lipid prices tin be. The Organization of nan Petroleum Exporting Countries (OPEC) declined to trim accumulation successful consequence to nan caller U.S. glut of oil, triggering a 70 percent plunge successful prices betwixt 2014 and 2016. Investors burned by that bust are still leery of pouring money into lipid and state a decade later, says Brandon Davis, laminitis of AFE Leaks, a consulting patient that tracks superior costs for lipid and gas. Labor and materials are besides much costly now because of inflation, Cowan says.

Long-term, expect nary awesome surge successful caller U.S. drilling. “Oil companies don’t usually respond to economical conditions brought connected by policies that tin beryllium temporary,” says Patrick De Haan, caput of petroleum study astatine GasBuddy, an app that tracks state prices for drivers. It takes six months aliases much to get afloat accumulation from a caller well, Cowan says, truthful producers making these decisions must deliberation astir what nan substance will costs months down nan line. Oil futures markets presently task that, by October, West Texas Intermediate crude will costs little than $90 per barrel, compared pinch much than $105 per tube today. But nan World Bank and Barclays person accrued their state value forecasts for nan remainder of nan year. “The longer this goes on, nan worse it’s going to get,” says Davis, who deliberation nan markets are overly optimistic that nan Strait will soon reopen. He believes that prices should beryllium moreover higher than they presently are.

Increasing accumulation won’t dress up for nan existent shortfall, either. Much of nan country’s shale accumulation has been tapped, leaving little productive and little economical deposits. The totality of U.S. accumulation is astir 13.6 cardinal barrels of lipid per day, compared pinch nan 20 cardinal barrels per time that are trapped by nan Iran war.

So far, ample firms specified arsenic ExxonMobil and Chevron are still holding to their drilling plans from earlier nan U.S.-Iran war, according to caller statements by executives. Smaller privately owned producers, however, are opening to measurement expedited drilling, Davis says. For example, Oklahoma City–based Continental Resources announced successful April that it will beryllium adding rigs. And connected Monday Diamondback Energy, which operates successful Texas and New Mexico, pledged to pump 3 percent much lipid than had been antecedently planned this year.

There is 1 awesome quality to past value spikes: inexpensive renewable power is an disposable replacement that wasn’t truthful accessible successful nan past. Wind and star generated 17 percent of U.S. energy successful 2025, according to nan U.S. Energy Information Administration, a authorities agency that tracks power statistics. That guidelines level of renewables is reducing request for fossil fuels successful nan utilities sector. “The renewables are redeeming our bacon for really quickly nan power prices are rising,” Cowan says.

But nan alleviation is limited. Americans are spending astir half a cardinal dollars much a time connected substance than they would apt person spent if nan Iran conflict hadn’t happened, De Haan says. “At nan extremity of nan day,” he says, “it’s elemental economics. Prices are going up because location has been a drastic simplification successful supply.”

Disclosure: The reporter’s spouse is employed successful nan lipid and state manufacture and owns interests successful wells.