Gasoline prices, politics and the reality of petroleum distribution.

Governments of 18 of the top 20 oil producing nations control the distribution of oil from their territories. Only two, the United States and Canada, allow oil companies to distribute oil according to market dynamics. While it may be correct to talk of “Saudi Arabian Oil” there is no such equivalent entity as “American Oil.”

Sometimes a message warrants repeating especially during an election year when the facts of a position or policy become secondary to the headlines generated. Such is the case with America’s energy policy. As the Republicans bloody themselves trying to be more conservative than each other the facts surrounding gasoline prices, and energy policy in general, become subordinate to almost anything else. Various politicians seeking the Republican nomination for President maintain that increasing oil production from “American wells” would result in lower gas prices and that the current administration is somehow interfering with these efforts. To suggest that a single individual, even the President of the United States, has the capability of controlling oil prices is absurd.

It’s time for another fact check on these recrudescent assertions that more American oil would lower gasoline prices. First, the United States Energy Information Administration published a report in 2009 that concluded that opening up the United States Outer Continental Shelf for unlimited drilling of oil on would result in a potential decrease in retail gasoline prices of 3 cents per gallon… by 2030.

Specifically the report stated:

“With limited access to the lower 48 OCS, U.S. dependence on imports increases, and there is a small increase in world oil prices. Oil import dependence in 2030 is 43.4 percent in the OCS limited case, as compared with 40.9 percent in the reference case, and the total annual cost of imported liquid fuels in 2030 is $403.4 billion, 7.1 percent higher than the projection of $376.6 billion in the reference case. The average price of imported low-sulfur crude oil in 2030 (in 2007 dollars) is $1.34 per barrel higher, and the average U.S. price of motor gasoline price is 3 cents per gallon higher, than in the reference case. “

Oil prices are fungible meaning that the small percent increase in production achieved by unlimited drilling of America’s offshore well fields would be minuscule compared to the rest of the world and would not impact prices in any significant manner.  It just wouldn’t matter.

But wait, for the second point one might argue that discussions about fungibility are fine but we’re taking about American oil, right? Not so much. As has been previously noted, the oil obtained from beneath American soil whether it is from the North Slope or from the Gulf of Mexico simply does not belong to America. I just have to repeat that statement because it seems to be a critical point that is not understood by many. Oil from beneath American soil does not belong to America – there is no such thing as “American oil” If that seems odd then maybe it is.

Of the top 20 oil producing nations, the distribution of oil is controlled by governments in those countries. (See the chart at the top of this posting.) In two of the top 20, the United States and Canada, the distribution of oil is totally up to the oil companies. For just a little hypothesis boundary testing, it would be entirely legal, if not logistically challenging, for all the oil from the North Slope and the Gulf of Mexico to be sent overseas. Now, that’s unregulated capitalism!


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