NPR hosts Sarah Gonzalez and Nick Fountain

OPEC does not fully account for that wild spike in oil prices that we’ve seen recently. That story is a little more complicated. And for help telling it, we called up another economist, Ryan Kellogg. He used to work at BP. He was a well test engineer. They actually offered him one of those jobs as an oil broker.

RYAN KELLOGG: I turned that down. I decided I did not want to do that, and I became…

GONZALES: OK.

KELLOGG: …An academic instead.

GONZALES: Any regrets about that decision?

KELLOGG: No, I’m pretty happy with how things came out.

GONZALES: Ryan is now at the University of Chicago, and he has focused a lot on the incentives that actually convince oil companies to increase supply, to drill for more oil.

FOUNTAIN: And there is one number that he pays a lot of attention to – rig counts.

KELLOGG: Exactly. So rig counts are a measure of how many drilling rigs in the U.S. are actively drilling an oil or gas well at any given point in time.

GONZALES: The rig is basically the drill that pokes holes in the ground looking for new oil. So rigs equal new oil supply.

KELLOGG: And after the pandemic hit and oil prices collapsed, rig counts collapsed along with it, basically, to the lowest levels in recorded history.

FOUNTAIN: It was a rough time to be a rig worker. Everything came to a standstill. No one wanted crude oil ’cause no one wanted gas. No one was driving. And the price, you might remember, of crude oil plummeted down to $0 – actually, negative dollars for a little bit. We did an episode about it at the time.

GONZALES: Oil companies were, like, at zero or close to $0, it is no longer worth it to drill for oil. And so the number of rigs in operation, the rig count, dropped.

KELLOGG: So we’re talking about going from a bit over right around a thousand rigs down to about 250…

GONZALES: Oh, crap. That’s…

KELLOGG: …By the summer of 2020.

GONZALES: That’s a big difference.

KELLOGG: Yeah. The industry, more or less, stopped drilling.

FOUNTAIN: Hundreds of rigs were taken out of commission.

KELLOGG: Yeah, the industry term, they call it stacking a rig.

KELLOGG: Stacking.

KELLOGG: Stacking it. Yeah. They’re not literally stacked on top of each other. At least, I don’t think they are. But you can imagine just, you know, a big open field in the middle of West Texas where there’s just a bunch of rigs sitting there.

GONZALES: So we were not tapping new sources of oil. We had low oil supply. And then, two things happened that changed everything.

FOUNTAIN: And you will remember both of these things. Basically, most people in the world just sort of collectively decided that the pandemic was over, started driving again. And shortly after, Russia invaded Ukraine, and much of the world stopped taking Russia’s oil. All of a sudden, we didn’t have enough oil supply. And this made the price of crude go way up. At one point, it hit $130 a barrel, more than double what it had been before the pandemic.

GONZALES: And there’s this saying, that the solution to high gas prices is high gas prices because it makes it worth it for people to drill for more oil and produce more oil, which happened. Once oil prices hit a certain point, oil companies were like, OK, it’s worth it to drill again.

FOUNTAIN: Unstack the rigs.

KELLOGG: So now there’s this really strong incentive to get rigs out of stack and find crews again. But that’s not the sort of thing you can just snap your fingers and make happen. You lay off a bunch of rig crews in 2020. Now it’s 2022. It’s not like those people are just sitting around, waiting for you to call them. If you’re a rig operator, they’ve gone and found other jobs. You have to do some maintenance on the rigs before you can pull them out of stack. You can’t just drag it out of stack and start drilling a well right away. All of that takes time.

FOUNTAIN: And also, there is a little lag between drilling a well and having that well pumping at full capacity.

GONZALES: Yeah. Ryan says it takes one to two months.

FOUNTAIN: So that is why supply in the U.S. has taken some time to ramp back up. But it has ramped up. Right now, the rig count is 765. There are 765 rigs out there drilling wells. But remember, before the pandemic, there were a thousand.

GONZALEZ: And some lawmakers are like, what’s the holdup, guys? Why didn’t you ramp back up sooner? You could increase supply. That would lower oil, and therefore gas, prices.

FOUNTAIN: Yeah. But Ryan, who studies this stuff, says he has not seen any evidence that oil companies held back on drilling with the explicit goal of keeping gas prices high.

GONZALEZ: And listen, gas prices have been falling, from the high of about $5 a gallon in June to about $4 a gallon right now. And maybe it’s a little bit rig counts, but also, people have stopped wanting to drive because prices were high. Demand went down.

FOUNTAIN: Also, the U.S. has been pulling from its Strategic Petroleum Reserve, taking a million barrels out a day from its secret underground salt domes.

GONZALEZ: Now, the White House says that releasing oil from the reserves, along with other international partners that are also doing this, has lowered gas prices by about 40 cents per gallon. Ryan says we don’t really know, though.

KELLOGG: It’s hard to know exactly how much it’s lowered prices. It’s almost certainly not a huge amount, but it’s not zero either.

Continue at NPR’s Planet Money…

Areas of Focus: Energy Markets
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Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Fossil Fuels
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Fossil Fuels
Under current policies, fossil fuels will play an important role in the energy system for the foreseeable future. EPIC research is exploring the costs and benefits of these fuels as...