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    Oil and Gas Prices May Stay High as Investors Chase Clean Energy

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    Even as more costly fuel poses political risks for President Biden, oil companies and OPEC are not eager to produce more because they worry prices will drop.HOUSTON — Americans are spending a dollar more for a gallon of gasoline than they were a year ago. Natural gas prices have shot up more than 150 percent over the same time, threatening to raise prices of food, chemicals, plastic goods and heat this winter.The energy system is suddenly in crisis around the world as the cost of oil, natural gas and coal has climbed rapidly in recent months. In China, Britain and elsewhere, fuel shortages and panic buying have led to blackouts and long lines at filling stations.The situation in the United States is not quite as dire, but oil and gasoline prices are high enough that President Biden has been calling on foreign producers to crank up supply. He is doing so as he simultaneously pushes Congress to address climate change by moving the country away from fossil fuels toward renewable energy and electric cars.U.S. energy executives and the Wall Street bankers and investors who finance them are not doing anything to bolster production to levels that could bring down prices. The main U.S. oil price jumped nearly 3 percent on Monday, to about $78 a barrel, a seven-year high, after OPEC and its allies on Monday declined to significantly increase supply.Producers are still chafing at memories of the price crash early in the pandemic. Wall Street is even less enthusiastic. Not only have banks and investors lost money in the boom-bust cycles that whipsawed the sector over the past decade, but many also say they are prepared to pare their exposure to fossil fuels to meet the commitments they have made to fight climate change.“Everyone is very wary since it was just 15 or 16 months ago we had negative-$30-a-barrel oil prices,” said Kirk Edwards, president of Latigo Petroleum, which has interests in 2,000 oil and natural gas wells in Texas and Oklahoma. He was recalling a time of so little demand and storage capacity that some traders paid buyers to take oil off their hands.If the drillers don’t increase production, fuel prices could stay high and even rise. That would present a political problem for Mr. Biden. Many Americans, especially lower-income families, are vulnerable to big swings in oil and gas prices. And while use of renewable energy and electric cars is growing, it remains too small to meaningfully offset the pain of higher gasoline and natural gas prices.Goldman Sachs analysts say energy supplies could further tighten, potentially raising oil prices by $10 before the end of the year.That helps explain why the Biden administration has been pressing the Organization of the Petroleum Exporting Countries to produce more oil. “We continue to speak to international partners, including OPEC, on the importance of competitive markets and setting prices and doing more to support the recovery,” Jen Psaki, Mr. Biden’s press secretary, said last week.But OPEC and its allies on Monday merely reconfirmed existing plans for a modest rise in November. They are reluctant to produce more for the same reasons that many U.S. oil and gas companies are unwilling to do so.Oil executives contend that while prices may seem high, there is no guarantee that they will stay elevated, especially if the global economy weakens because coronavirus cases begin to increase again. Since the pandemic began, the oil industry has laid off tens of thousands of workers, and dozens of companies have gone bankrupt or loaded up on debt.Oil prices may seem high relative to 2020, but they are not stratospheric, executives said. Prices were in the same territory in the middle of 2018 and are still some ways from the $100-a-barrel level they topped as recently as 2014.Largely because of the industry’s caution, the nationwide count of rigs producing oil is 528, roughly half its 2019 peak. Still, aside from recent interruptions in Gulf of Mexico production from Hurricane Ida, U.S. oil output has nearly recovered to prepandemic days as companies pull crude out of wells they drilled years ago.Another reason for the pullback from drilling is that banks and investors are reluctant to put more money into the oil and gas business. The flow of capital from Wall Street has slowed to a trickle after a decade in which investors poured over $1.4 trillion into North American oil and gas producers through stock and bond issues and loans, according to the research firm Dealogic.“The banks have pulled away from financing,” said Scott Sheffield, chief executive of Pioneer Natural Resources, a major Texas oil and gas producer. The flow of money supplied by banks and other investors had slowed even before the pandemic because shale wells often produced a lot of oil and gas at first but were quickly depleted. Many oil producers generated little if any profit, which led to bankruptcies whenever energy prices fell.Companies constantly sold stock or borrowed money to drill new wells. Pioneer, for example, did not generate cash as a business between 2008 and 2020. Instead, it used up $3.8 billion running its operations and making capital investments, according to the company’s financial statements.Industry executives have come to preach financial conservatism and tell shareholders they’re going to raise dividends and buy back more stock, not borrow for big expansions. Mr. Sheffield said Pioneer now intended to return 80 percent of its free cash flow, a measure of money generated from operations, to shareholders. “The model has totally changed,” he said.Among oil executives, there are still vivid memories of the collapse in energy prices last year, as the pandemic curtailed commuting and travel.Tamir Kalifa for The New York TimesOil company shares, after years of declines, have soared this year. Still, investors remain reluctant to finance a big expansion in production.With oil and gas exploration and production businesses taking a cautious approach and returning money to shareholders, the first company “that deviates from that strategy will be vilified by public investors,” said Ben Dell, managing director of Kimmeridge, an energy-focused private equity firm. “No one is going down that path soon.”This aversion to expanding oil and gas production is driven in part by investors’ growing enthusiasm for renewable energy. Stock funds focusing on investments like wind and solar energy manage $1.3 trillion in assets, a 40 percent increase this year, according to RBC Capital.And the biggest investment firms are demanding that companies cut emissions from their operations and products, which is much harder for oil and gas companies than for technology companies or other service-sector businesses.BlackRock, the world’s largest asset manager, wants the businesses it invests in to eventually remove as much carbon dioxide from the environment as they emit, reaching what is known as net-zero emissions. The New York State Common Retirement Fund, which manages the pension funds of state and local government workers, has said it will stop investing in companies that aren’t taking sufficient steps to reduce carbon emissions.But even some investors pushing for emissions reductions express concern that the transition from fossil fuels could drive up energy prices too much too quickly.Mr. Dell said limited supply of oil and natural gas and the cost of investing in renewable energy — and battery storage for when the sun is not shining and the wind is not blowing — could raise energy prices for the foreseeable future. “I am a believer that you’re going to see a period of inflating energy prices this decade,” he said.Laurence D. Fink, chairman and chief executive of BlackRock, said this could undermine political support for moving away from fossil fuels.“We risk a supply crisis that drives up costs for consumers — especially those who can least afford it — and risks making the transition politically untenable,” he said in a speech in July.There are already signs of stress around the world. Europe and Asia are running low on natural gas, causing prices to rise even before the first winter chill. Russia, a major gas supplier to both regions, has provided less gas than its customers expected, making it hard for some countries to replace nuclear and coal power plants with ones running on gas.OPEC, Russia and others have been careful not to raise oil production for fear that prices could fall if they flood the market. Saudi Arabia, the United Arab Emirates, Russia and a few other producers have roughly eight million barrels of spare capacity.“The market is not structurally short on oil supply,” said Bjornar Tonhaugen, head of oil markets for Rystad Energy, a Norwegian energy consulting firm.Helima Croft, head of global commodity strategy at RBC Capital Markets, said she expected that OPEC and Russia would be willing to raise production if they saw the balance between supply and demand “tighten from here.”If OPEC raises production, U.S. producers like Mr. Edwards of Latigo Petroleum will be even more reluctant to drill. So far, he has stuck to the investment plans he made at the beginning of the year to drill just eight new wells over the last eight months.“Just because prices have jumped for a month or two doesn’t mean there will be a stampede of drilling rigs,” he said. “The industry always goes up and down.”Clifford Krauss reported from Houston, and Peter Eavis from New York. More

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    Gas Price Increase Poses Challenge to U.S. Economy

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    Experts say a period of costlier fuel is likely to be brief. But if consumers start to assume otherwise, it could mean problems for Biden and the Fed.As the U.S. economy struggles to emerge from its pandemic-induced hibernation, consumers and businesses have encountered product shortages, hiring difficulties and often conflicting public health guidance, among other challenges.Now the recovery faces a more familiar foe: rising oil and gasoline prices.West Texas Intermediate, the U.S. oil-price benchmark, hit $76.98 a barrel on Tuesday, its highest level in six years, as OPEC, Russia and their allies again failed to agree on production increases. Prices moderated later in the day but remained nearly $10 a barrel higher than in mid-May.Reflecting the increase in crude prices, the average price of a gallon of regular gasoline in the United States has risen to $3.13, according to AAA, up from $3.05 a month ago. A year ago, as the coronavirus kept people home, gas cost just $2.18 a gallon on average. The auto club said on Tuesday that it expected prices to increase another 10 to 20 cents through the end of August.The price of a gallon of gas

    Note: Weekly prices through Monday. Data is not seasonally adjusted and includes all formulations of regular gasoline.Source: Energy Information AdministrationBy The New York TimesThe rapid run-up comes at a delicate moment for the U.S. economy, which was already experiencing the fastest inflation in years amid resurgent consumer activity and supply-chain bottlenecks. And it could cause a political headache for President Biden as he tries to convince the public that his policies are helping the country regain its footing.Asked about oil prices at a White House news conference on Tuesday, Jen Psaki, the press secretary, said the administration was monitoring the situation and had been in touch with officials from Saudi Arabia and other major producers. But she suggested that the president had limited control over gas prices.“There sometimes is a misunderstanding of what causes gas prices to increase,” Ms. Psaki said. “The supply availability of oil has a huge impact.”Indeed, energy experts said the recent jump in oil prices had more to do with global economic and geopolitical forces than with domestic policies. Global energy demand slumped when the pandemic hit last year, eventually leading the Organization of the Petroleum Exporting Countries and its allies to cut production to prevent a collapse in prices. Demand has begun to rebound as economic activity resumes, but production has not kept pace: OPEC Plus, the alliance of oil producers, on Monday called off a teleconference to discuss increasing output.The direct economic impact of higher oil prices will probably be substantially more modest than in past decades. Energy overall plays a smaller role in the economy because of improved efficiency and a shift away from manufacturing, and the rise of renewable energy means the United States is less reliant on oil in particular.In addition, the surge in domestic oil production in recent years means that rising oil prices are no longer an unambiguous negative for the U.S. economy: Higher prices are bad news for drivers and consumers, but good news for oil companies and their workers, and the vast network of equipment manufacturers and service providers that supply them. Joe Brusuelas, chief economist at the accounting firm RSM, said oil prices of $80 or even $100 a barrel didn’t concern him. Not until prices top $120 a barrel would he start to worry seriously about the economic impact, he said.“The world has changed,” Mr. Brusuelas said. “The risks aren’t what they once were.”Still, the costs of higher prices will not be felt equally. Poor and working-class Americans drive older, less efficient cars and trucks and spend more of their incomes on fuel.Higher oil prices are no longer an altogether bad thing for the U.S. economy, but they are a particular burden to poor and working-class Americans.Audra Melton for The New York TimesScott Hanson of Western Springs, Ill., said $40 was enough to fill up his gas tank last year, when he lost his job as an office manager because of the pandemic. Now Mr. Hanson is paying over $60 to fill his Dodge Charger, making trips to take his mother to her medical appointments more expensive. Gas in Illinois is averaging $3.36 a gallon, according to AAA.“It’s too much for too many people that lost their jobs or have low-paying jobs,” Mr. Hanson said. “Everything bad that could happen is happening all at once.”Gas prices also remain a potent and highly visible symbol of rising prices when many consumers — and some economists — are nervous about inflation. Consumer prices rose 5 percent in May from a year earlier, the biggest annual increase in more than a decade, and forecasters expect figures for June, which will be released next week, to show another significant increase.Policymakers at the Federal Reserve have said they expect the increase in inflation to be short-lived, and they are unlikely to change that view based on an increase in energy prices, which are often volatile even in normal times, said Jay Bryson, chief economist at Wells Fargo.But if rising oil prices lead consumers and businesses to believe that faster inflation will continue, that could be a harder problem for the Fed. Economic research suggests that prices of things that consumers buy often, such as food and gasoline, weigh particularly heavily on their expectations for inflation. With public opinion surveys showing increasing concern about inflation, rising oil prices increase the risk of a more lasting shift in expectations, said David Wilcox, a former Fed economist who is now a senior fellow at the Peterson Institute for International Economics in Washington.“I don’t expect the price of oil to be the last straw on the camel’s back, but it is another straw on a camel’s back that’s already carrying a fair amount of baggage,” Mr. Wilcox said. “There is a much greater risk today of an inflationary psychology taking hold than I would have said three to five years ago.”Republicans have seized on rising prices to criticize Mr. Biden’s energy policies, including his decision to cancel permits for the Keystone XL oil pipeline and his pause on selling new oil leases on federal lands, a move that a federal judge has blocked.“Bad policy is already creating conditions like higher gasoline prices that we haven’t seen in a very long time,” Senator John Barrasso, Republican of Wyoming, wrote in an opinion essay last week. (Energy experts say Mr. Biden’s policies have had no meaningful impact on oil prices.)Ms. Psaki noted that Mr. Biden had consistently opposed an increase in the federal gas tax, which some Republican senators and business groups had advocated to help fund spending on infrastructure. The deal Mr. Biden reached with a bipartisan group of senators last month did not include a gas tax increase.“Ensuring Americans don’t bear a burden at the pump continues to be a top priority for the administration writ large,” Ms. Psaki said. “That’s one of the core reasons why the president was opposed — vehemently opposed — to a gas tax and any tax on vehicle mileage, because he felt that would on the backs of Americans. And that was a bottom-line red line for him.”Domestic oil production is expected to rise in coming months as higher prices and rising demand lead companies to step up drilling. But any rebound is likely to be gradual. U.S. oil companies have been cautious about investing in new exploration and production over the last year, even as oil prices have roughly doubled from the first half of 2020, when the pandemic punctured demand. Company executives say they are focused on share buybacks and debt reduction as sales rise.The Energy Department predicts that production will average 11.1 million barrels a day this year and 11.8 million barrels a day in 2022, 400,000 barrels a day less than in 2019.Even without a surge in domestic oil production, many forecasters doubt that prices will continue to rise at their recent pace. OPEC members generally agree that production should increase; they just disagree about how much. And a new nuclear deal with Iran or a thawing of U.S.-Venezuela relations could bring a flood of new supplies. Iran alone could potentially add 2.5 million to three million barrels of oil daily on the global market, or roughly a 3 percent addition to supplies.At the same time, the spread of new coronavirus variants has led some countries to reimpose or tighten restrictions on activity, which could dampen demand for oil. Capital Economics, a forecasting firm, said on Tuesday that it expected oil prices to peak at about $80 a barrel before falling back as supply increases. But the firm said that a collapse in prices or a further spike both remained possible.Reporting was contributed by More