You may soon find yourself paying a dime more for a gallon of gas, which you may blame on unrest in Egypt.
You’d be only partly right. Another culprit, believe it or not, is how successful the energy business has been recently in the U.S.
Inventories of domestic crude oil have plunged in recent weeks, driving up demand, and soon, the price to fill your tank.
Andrew Lipow of Lipow Oil Associates expects to see prices of $3.60 per gallon nationally in the not too distant future. The current average pump price is $3.50 per gallon for regular unleaded gasoline.
“The fact is that world oil demand has been growing and the U.S. has become an integral part of that supply chain,” Lipow said.
The industry has been innovating ways to move millions of barrels of shale oil from the center of the country to coastal refineries, and its efforts are paying off.
Government inventory data Wednesday showed the steepest two-week drop in crude inventories in 30 years. Commercial oil inventories fell 9.9 million barrels from the week earlier, on top of a 10 million-barrel decline last week.
(Read More:Two Big Reasons Gas Could Spike)
Oil prices have been rising on geopolitical concerns, with production offline in Libya and unrest in Egypt creating concerns about the Suez Canal shipping lanes. But the decline in inventories gave it another boost.
"Going along with 'drill, drill, drill' is now 'ship, ship, ship,' " said John Kilduff, energy analyst with Again Capital. "The bottleneck has been addressed in Cushing [Okla]. We're seeing those inventories plunge. We're seeing it from all the rail movement. It's having an impact, as are the pipeline reversals."
Stockpiles of crude at Cushing fell by 2.69 million barrels last week, to 46.97 million barrels, the lowest level since December 2012. Cushing is a major oil hub and delivery point for oil futures options contracts based on WTI crude.
Trains are carrying about 900,000 barrels of oil a day across North America, with rail taking North Dakota crude to the East and West coasts. According to IHS CERA, that number is up from 100,000 barrels of crude in 2010. The reversal of the Seaway pipeline has taken crude away from Cushing to the Gulf Coast, and the Magellan Longhorn pipeline is now carrying crude straight from the Permian basin in Texas to Houston for refining.
The drawdown coincides with an increase in refinery runs, which at 16.1 million barrels a day for the week were at the highest level since July 2007. Distillate production of 5 million barrels was at an all-time high, and diesel demand, at 4.1 million barrels per day, was up 12.3 percent for the week.
"It's basically that the refiners are showing a demand for North American crude, and that's why it's approaching the global market price," said Gene McGillian, oil analyst with Tradition Energy. The U.S. is producing more oil itself and importing less, particularly from Algeria, Libya and Nigeria.
The U.S. produced 7.4 million barrels of oil a day, the highest since January 1992, while the increase in imports to 7.5 million barrels was relatively low, according to EIA.
In the third quarter, the Magellan Pipeline is supposed to be moving 225,000 barrels a day from the Permian Basin to Houston area, he said. The Sunoco Logistics Pipeline—which began delivering crude last week from the Permian to the Port Arthur, Texas, area—is carrying 90,000 barrels a day and expects to go to 150,000 by year-end, he said.
Other efforts to move crude are in the works, including the southern leg of the TransCanada Keystone XL pipeline, now 80 percent complete and expected to have capacity for 730,000 barrels a day, he said. The southern section goes from Cushing to the Gulf Coast.
"These barrels are no longer landlocked, so they're tracking the global price rather than that landlocked lower price they were seeing for the last couple of years," Kilduff said. "They say high prices cure high prices. The market there was broken, and the industry set its mind to liberating those barrels, and unfortunately for us, they did too good a job."
More business news:
- Dreams delayed: Young adults put off parenthood
- Panera shelves what-you-can-pay idea
- Hear ye! Hear ye! Her Majesty's Royal Mail is up for grabs
- Have you worked for a mortgage servicer? Tell us your story