Increasing oil supplies won’t lower gas prices only reducing U.S. demand can according to Obama and the AP

Posted by PITHOCRATES - March 24th, 2012

Week in Review

On the one hand gas prices aren’t high (see Rising gas prices aren’t as bad as you think).  On the other hand they are.  But there’s nothing the president can do about it so quit your bitching (see FACT CHECK: More US Drilling Didn’t Drop Gas Price [Higher fuel economy won’t lower gas prices according to AP] by JACK GILLUM and SETH BORENSTEIN, Associated Press, posted 3/21/2012 on ABC News).

U.S. oil production is back to the same level it was in March 2003, when gas cost $2.10 per gallon when adjusted for inflation. But that’s not what prices are now.

That’s because oil is a global commodity and U.S. production has only a tiny influence on supply. Factors far beyond the control of a nation or a president dictate the price of gasoline.

Funny.  When the stimulus failed it was the stimulus wasn’t big enough.  But when we only increase oil supplies a little and it doesn’t influence the world price of oil they don’t say the increase in supply wasn’t big enough.

The late 1980s and 1990s show exactly how domestic drilling is not related to gas prices.

Seasonally adjusted U.S. oil production dropped steadily from February 1986 until three years ago. But starting in March 1986, inflation-adjusted gas prices fell below the $2-a-gallon mark and stayed there for most of the rest of the 1980s and 1990s. Production between 1986 and 1999 dropped by nearly one-third. If the drill-now theory were correct, prices should have soared. Instead they went down by nearly a dollar.

Figures don’t lie but liars figure.  Talk about twisting the facts to support your Democrat president.  For what they say the data doesn’t support the data DOES support during the previous decade.  Following the 1973 Oil Crisis.  When OPEC placed an embargo on oil shipments to the U.S. and other Western nations that helped Israel in the Yom Kippur War.  Oil prices soared.  Bringing a lot of non-OPEC producers into the market.  To cash in on those high prices.  And while they were increasing oil production from the mid-Seventies to the mid-Eighties they flooded the market with oil.  Which also coincided with a reduction in demand in the U.S.  Who switched from gas-guzzlers to little cars with ‘sewing machine’ engines.  Tiny four cylinder engines.  This explosion in supply and reduction in demand caused the 1980s oil glut.  Causing oil prices to plummet.  Which kept gas prices low throughout the 1980s oil glut.

So when oil supply goes up gas prices come down.  In the 1980s that increase in oil supply came from outside of the U.S.  But it lowered gas prices nonetheless.  If an increase in U.S. production can match the increase of the non-OPEC producers during the Eighties then gas prices will come down, too.  But NOT increasing oil production will only increase gas prices in the face of increasing oil demand.

Unlike natural gas or electricity, the United States alone does not have the power to change the supply-and-demand equation in the world oil market, said Christopher Knittel, a professor of energy economics at MIT. American oil production is about 11 percent of the world’s output, so even if the U.S. were to increase its oil production by 50 percent — that is more than drilling in the Arctic, increased public-lands and offshore drilling, and the Canadian pipeline would provide — it would at most cut gas prices by 10 percent.

By this logic then there’s no point in trying to improve fuel economy.  Yet we do.  For when it comes to gasoline everything on the demand side of the equation can lower gas prices.  But nothing on the supply side can.  President Obama says we can inflate our tires.  Get a tune up.  Increase CAFE standards (force auto makers to increase the miles per gallon their cars can get).  Move into electric cars and hybrids.  If we do any of these we can bring down the price of gasoline.  But if we flood the market with new domestic oil it won’t do jack squat.  Go figure.


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