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↑ crude oil production ≠ ↓ gas prices

February 29, 2012

Like a moth drawn back to the flame I feel compelled to be singed one more time. It’s a simple equation, increasing oil production is not equal to lowering gas prices (↑ crude oil production ≠ ↓ gas prices).

The groundless argument that gasoline prices in the United States would be reduced by increasing the supply of crude oil from North America continues to be the preferred pabulum of the ill-informed. In multiple posts I have attempted to present the facts that should render this an untenable argument. These facts include:

  • Oil from American wells doesn’t belong to Americans; it belongs to the oil companies.
  • The crude oil market is global.
  • Oil is a fungible commodity and prices are not dependent on the source of the oil.
  • The production from American wells is minimal compared to global production.
  • The EIA has stated that opening the Outer Continental Shelf to unlimited drilling could result in gasoline prices being 3 cents lower by 2030.

I don’t believe any of those points are controversial and yet I sense that many believe that increasing oil production from North American sources would be reflected in lower gasoline prices at the pump. If that were true then we should be able to observe a clear correlation with monthly crude oil production and monthly retail gasoline prices.  The following chart is based on data from the EIA and shows crude oil production from United States sources, global crude oil production and gasoline prices. Note that the global supply of oil has been steadily increasing while gasoline prices have fluctuated broadly.

Crude oil production versus gasoline prices

As intuitive as politicians would like it to seem there just isn’t any basis for concluding that increasing oil production would result in lower gasoline prices. These feckless arguments detract from the discussion of how to realistically address our very real energy crisis. It’s time to stop oversimplifying a complex issue and start the process of becoming truly energy self-sufficient – an end point that can be achieved only thorough a multifaceted approach that includes increased oil production, nuclear, wind, solar, hydro, biofuels and others or as Obama stated in his February 25th radio address , “All of the above”. It just makes sense.

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