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Domestic Drilling Doesn't Decrease Gasoline Prices
eldavojohn writes "As the political rhetoric heats up, there's something puzzling about drilling inside the United States. Essentially, it doesn't reduce what we pay at the pump. From the article, 'A statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and U.S. domestic oil production by The Associated Press shows no statistical correlation between how much oil comes out of U.S. wells and the price at the pump.' If the promises that politicians made when they opened U.S. drilling were true, then we should be paying about $2 a gallon now. Instead it's $4 a gallon. Minnesota Public Radio pulls some choice quotes from both parties and wonders why this decades-old empirical observation goes seemingly completely unnoticed."
Speculation. That's what it boils down to, folks. If you really want to see $2.00 gas prices again, outlaw speculation and it will happen overnight. It is absolutely mind-boggling that this practice is allowed with no checks or balances to keep it from driving our gas prices sky high. People will bring up anything else, like gas taxes or domestic drilling, just to draw attention from the real problem. It's almost like no one on either side wants to have that conversation, though.
Why on earth would oil companies sell gasoline here for $2.50 a gallon when they can sell it in France for $10 a gallon? Gas prices are higher because we're selling gasoline overseas. Welcome to the global economy.
There's at least one domestic downside to America's growing role as a fuel exporter. Experts say the trend helps explain why U.S. motorists are paying more for gasoline. The more fuel that's sent overseas, the less of a supply cushion there is at home.
I still remember crowds of complete fucking idiots chanting, "Drill, baby, drill!!" Pathetic.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
Speculation of this kind has a long history. G K Chesterton, nearly a hundred years ago, referring in passing to the scandal of the time, wheat futures buyers who were not millers or grocers trying to buy up the entire wheat crop in order to raise prices to whatever they thought would not actually collapse civilisation while making them rich. Currently, I believe, over 70% of oil production is accounted for by hedge fund futures. It is a classical cornering of the market - but it could only be addressed by sending gunboats to banana republics like the Bahamas, the Channel Islands, the State of Delaware and the City of London.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
My comments were based on the idea of: if it doesn't lower prices, why should the U. S. be in the oil business?
The petroleum reserve was designed for major catastrophes. Apparently in its history, total draw-downs have only amounted to around ten percent of the total capacity.
So that is one piggy bank that really hasn't been raided unduly. Thanks for bringing it up! It would be interesting to know if the market considers that large withdrawals could be made or if a major withdrawal would actually cause prices to fall.
Their they're doing there hair.
People, when the oil comes out of the ground... it doesn't belong to us. It belongs to the oil companies that drilled for it who sell it anywhere it will make a profit for them. Furthermore, our lying, double-talking politicians know it. Sen Bill Nelson proposed an amendment to the Keystone pipeline bill that would have banned exporting its oil. Drill here, drill now right? I mean to hear the political class it's the universally accepted answer to lowering gas prices at the pump. Prices go down if you increase local supply right? Wrong. The Amendment was predictably rejected. Oil is priced, bought, and sold globally. Domestic vs Foreign oil is an illusion.
Add to that the fact that every state in the union tacks on its own fuel tax. Ask anyone who has tried to confront the problem with fuel alternatives such as biodiesel only to find themselves in hot water over dodging that fuel tax. (http://domesticfuel.com/2007/03/27/homebrew-biodiesel-makers-running-afoul-of-tax-laws/). Any state could immediately lower gasoline prices by declaring a tax holiday at the pump... but don't hold your breath waiting for that to happen.
I agree with everyone here about the prospect of ending or at least more tightly regulating speculation... and if we can't do that, we can at least stop invading countries in the middle east and sabre rattling. It is no coincidence that gasoline started its rise around the time we invaded Iraq. Now that we find ourselves playing the same broken record when it comes to Iran, despite the numbers of Americans who were looking forward to bringing our troops home and reallocating our resources accordingly, it should surprise no one that gas prices are experiencing upward pressures.
If you want to lower the price at the pump, how about getting our government to get behind a foreign policy aimed at bringing peace and stability to the regions of the world where our oil comes from instead of looking for excuses to blow middle eastern countries back into the stone age.
The oil controversy is a farce. Did you know that the United States EXPORTS 47 thousand barrels of crude oil, and 2.9 million barrels of petroleum products per day?
(http://205.254.135.7/dnav/pet/pet_move_exp_dc_NUS-Z00_mbblpd_a.htm)
.....Annnnnd if you believe that, you need to leave now and go kill yourself. When you open domestic drilling, it's more money in the pockets of the people running the country. Simple as that. It's the only reason. Oil money runs the US, and probably a lot of other countries.
More fun reading to see what your funding when you gas up that fat-ass SUV . You may as well be dealing drugs out of mexico.
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Is nothing to do with the price of oil per barrel essentially.
I will give you an example from up here in Canada where I live, specifically Victoria BC. The price here varies between roughly $1.12/litre and $1.39/litre (i.e. $4.24 to $5.26 US dollars. The exchange rate is $1 Cdn = $0.9997 US so no effective difference at the moment). The price per litre varies on a daily basis, with no real apparent pattern.
Now, our gas comes from Alberta as oil, is shipped to the US to be converted into gas, then gets shipped back north to BC (why we don't make it ourselves is beyond me).
The price goes up based on anything remotely bad in the news apparently. Revolution in Libya, price goes up. Bad weather, price goes up. Election coming, price goes up. Long weekend coming, price goes up. It drops periodically when things are normal. I have only seen it go over $1.39/litre once or twice and then only for a few hours. When it goes up at one station, it follows at the rest, same thing when it drops.
It seems to me that this price war has nothing to do with the price of oil internationally. I haven't noticed a pattern for the most part.
However, one change that does happen is if the price of a barrel jumps dramatically up, the price of gas jumps immediately - no matter that the gas we bought actually cost less. However, if the price per barrel drops dramatically, the price at the pump drops slowly if at all.
Its nothing more than an industry colluding to ensure they get the highest prices possible, combined with a government that is not interested in regulating it at all because they collect massive taxes on the sale of fuel.
So it doesn't surprise me that drilling in the US doesn't affect price at the pump - because the industry that sets the prices has zero interest in lowering the price of gas, they are milking it for all they think they can get away with, and with zero repercussions. Our NA society is built on burning fossil fuels, and nothing is going to change that any time soon.
"The first time I got drunk, I got married. The second time I bought a chimpanzee, after that I stayed sober" Arian Seid
You've hit the nail on the head (so to speak) with respect to vertical monopolies. While there isn't a giant Standard Oil anymore, the fact that the oil companies control the entire lifecycle (in one way or another) from crude to finished product at the pump shows that we can have the weird market fluctuations you described. (Going quickly up, but taking its sweet time to go down in price.) The fact that gasoline isn't something that has very elastic demand because of the way it is used in every aspect of our economy lends us to the conclusion that vertical monopolies can leverage their monopoly status to keep prices artificially high in the face of real change in the marketplace.
It is funny that our refining capacity never meets the aggregate amount of oil we are pulling out of the ground. (It's more profitable to close the refineries rather than let price go down.)
We've seen the oil companies push prices up to a point, hear the outcry, then lower prices back down slowly so the average person with a busy life doesn't notice that gasoline spiked at $4/gallon up from $2.50. But they never seem to get back to $2.50... the price just stays up where it was, slightly below the heartburn level that caused the reduction in the first place. :)
When you have an item that most people depend upon (and businesses too), you can play fast and loose with the market and not fear losing customers. (I wish the electric car would put a damper on this practice, but I'm not holding my breath.)
It's the Stay-Puft Marshmallow Man.
Very true. Which is why Keystone is going to the golf coast. So that the crude can be refined and then loaded onto ships and sold overseas. In fact there's a $2bn anual tax incentive to take canadian crude and ship it overseas. Long term the US tax payer is the one that pays for the Pipeline via tax incentives.
If you wanted to lower gas prices in the US you would pass the Pickens Plan (the bi-partisan Natural Gas Act that was recently filibustered in the senate by those beholden to big oil) to convert comercial semi's to Natural Gas (by the way the original conversion from gas to diesel took 5 years). And then you tax the crap out of petroleum exports. You put those tax dollars into renewables and building a hydrogen infrastructure.
By the way one of the biggest by-products of natural gas production is hydrogen. So if we're going to push natural gas we might as well collect and distribute hydrogen the same time. Supply and demand at work.
It is not an "excuse" for the price. It is people betting that the price will rise more often than that it will fall. There are numerous reasons the price could fall:
1) Huge unexpected oil reserve found.
2) Breakthrough in some alternative energy technology
3) Mass change in lifestyle
4) A Major industry converts to natural gas, etc.
Compare the likelihood of the above with the likelihood of:
1) USD will inflate
2) World population will grow, increasing demand
3) Oil supply will continue to be used up
I think it is likely the price of oil is below its true value.
Speculators. During the crash in 2008 speculators got out of oil in a big way and lo, prices plummeted. As they got back in prices have gone steadily back up.
And sorry to go off on a rant here, but to the larger point...
As far as triggering behavioral changes, I would recommend increasing taxes on gas (we're still much less expensive than Europe) and VASTLY increasing tolls for daily commuters. If you live in the city/suburbs and are commuting to the suburbs/city you are a big part of the problem. If employers want to reap the benefits of cheap real estate in the burbs, let them subsidize workers transit or - MUCH BETTER - make them pay so much that telecommuting is very strongly incentivized.
Spend the increased taxes on improving mass transit and information infrastructure, see consumption drop, and maybe the best part would be more people working from home and being able to spend more time with family instead of wasting hours of their days stuck in traffic to go to a job they could easily do from anywhere with a decent net connection (for the most part).
Fuel costs would stabalize or go down for long-haul uses and things like food production while purely recreational use would be treated like an expensive luxury (as it should be).
What we need is not just changing from one fuel source to another, but a radical shift in how our economy works to recognize that physical transport of individual humans from point a to point b is pointless, that productivity has increased so much that a 40 hour work week is just dumb for the most part (and would be better split up between 2 people working 20 hours/week each), and that technology will let us make quite a few office jobs things people do routinely from home rather than being the exception.
Since I can't tell them apart, I treat all ACs as the same person.