While producers thrive on high oil prices, some require it in order to remain profitable. For example, a small Bakken driller like Kodiak Oil & Gas Corp (USA) (NYSE:KOG) needs oil to stay over $70 per barrel. That could mean that Kodiak Oil & Gas Corp (USA) (NYSE:KOG) and its smaller peers will need to pull back on production. Many other smaller oil drillers focus on areas with high natural gas content. A huge drop in the price of oil could impact the plans of Mississippi Lime driller SandRidge Energy Inc. (NYSE:SD). The company’s financials are tight, and its cash flow is really tied to oil, meaning that it might need to pull back on drilling if the price of oil falls any further.
This could dampen any long-term drop in the price of gas. The other area which might keep gas prices elevated is in refining costs, which could be affected by new regulations. A new EPA proposal to lower the sulfur content in gasoline could cost the refining industry $10 billion in upfront costs and another $2.4 billion in annual expenses. While the EPA says this would just raise the cost of gas by a penny, the industry believes this proposal could increase the price of gas between $0.09 and $0.25. Refiners like Phillips 66 (NYSE:PSX) will likely be able to pass most of these costs on to consumers. The company has been aggressively securing cheaper domestically produced oil to boost its profit margins, and it wants to keep those margins high. Phillips 66 (NYSE:PSX) and its peers will also look to export more gas if that’s what it takes.
What all this means is that while gasoline might be cheaper this summer, we face an uphill battle getting back to the glory days of really cheap gas. One of the problems with our newfound fuel efficiency is that we’re not generating enough in gas taxes to keep up with the funding required to maintain our aging infrastructure. While that has some states looking at an annual fee for owners of hybrid vehicles, most are looking at raising gas taxes in order to fund the massive infrastructure fixes our nation’s roadways need.
Enjoy the relatively cheap gas this summer. While I’m with you in rooting for gas prices to keep falling, we do face plenty of headwinds which likely will keep the price from dropping too far.
The article You Might Actually Be Able to Afford Gas This Summer originally appeared on Fool.com.
Motley Fool contributor Matt DiLallo owns shares of Phillips 66 (NYSE:PSX) and has the following options: Long Jan 2014 $10 Calls on Ford and Short Jan 2014 $10 Puts on Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.