From the AP (via ThinkProgress):
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.
When you put the inflation-adjusted price of gas on the same chart as U.S. oil production since 1976, the numbers sometimes go in the same direction, sometimes in opposite directions. If drilling for more oil meant lower prices, the lines on the chart would consistently go in opposite directions. A basic statistical measure of correlation found no link between the two, and outside statistical experts confirmed those calculations.
Because oil *is* a global commodity, and because consumption demand is a highly variable and critically important factor, the appropriate metric is not “US production vs. price” but “global production vs. global consumption demand vs. price”.
You’re presenting a small fraction of the appropriate information to consider, and apparently drawing conclusions from it as though you had considered the whole.
Markets work, and supply and demand meet. I suggest that if you are going to posit causal relationships that fly in the face of fundamental truths, you need to assemble airtight data of overwhelming significance, not cherry-pick subsets and act as though they mean something.
Robert, the point isn’t “supply doesn’t have any impact on price.” The point is that the US contribution to the supply is too small to affect US prices by itself and therefore arguments that the US should drill more to reduce our own costs is flawed.
The point is that the US contribution to the supply is too small to affect US prices by itself and therefore arguments that the US should drill more to reduce our own costs is flawed.
No, it isn’t. For one thing, look at the title of the post. “No Effect” is about as strong a negation of the logic of supply and demand as you can formulate without actually starting to drool.
What happens if we DON’T drill? One of two things:
1) Other producers increase their output to capture the demand our drilling was meeting, but those producers have cost-per-barrel that is higher than ours (if it weren’t, we would have paid them to increase output rather than producing ourselves), so the cash price goes up.
2) Other producers decide to not increase output, and let cash chase less oil so that their margin is higher, so the cash price goes up AND the opportunity cost from not having the oil available goes up.
Our drilling is not sufficient to drive down global prices on an absolute basis compared to status quo ante; we aren’t flooding the world with super-cheap oil and forcing other producers to lower costs. But our drilling is not without impact on the price.
It might help to think about Obama’s economic policies and unemployment. When (some) Republicans say that Obama’s policies are a failure because he said unemployment would go down to 7% but instead it went up to 9%, most liberals intuitively (and probably correctly) say that other conditions were so bad that the OUTCOME was worse than hoped for, but that the Obama policies themselves made a positive contribution towards increasing jobs.
Same deal.
And even if US drilling WAS, magically, the one exception to the iron laws of microeconomics, there would still be economic advantages to drilling here. Is it better to have people working as rig jocks in Texas, or in Riyadh?
“No effect” on *US gas prices,* not no effect on the global market in any way, shape or form.
A lot of the costs involved are related to shipping. It doesn’t necessarily follow that if we sell more oil to Mexico or Canada that we’ll be able to buy oil cheaper.
And it definitely doesn’t follow that if you stop drilling in Oklahoma and start shipping it in from Saudi, that it’ll be cheaper.
You guys are wrong on this, and not even in an interestingly wrong way, so I will leave you to it. Just think of me sitting on the sidelines, shaking my head and saying “nope” every time Amp responds. ;)
Robert, are you really saying that when presented with actual empirical data on the effect of US oil drilling on US oil prices, if the data does not correspond to your ideology, you will choose to just ignore the data? Because that’s what you seem to be doing here. Note that everything you are saying that Amp is saying is not something he actually said but stuff you are reading into what he said.
That said, I agree with you that Amp tends to be rather cavalier about his descriptions of data. He shouldn’t have said “no effect”, he should have said “no statistically measurable effect”. And you are entirely correct in your criticism that the correct comparison is not with the oil prices several years ago, but with what the oil prices would have been now had the US not increased oil drilling. So I actually agree with you that the data isn’t quite as compelling as Amp seems to think it is. But there’s a big gap between saying “the data you presented does not support the conclusion you drew” and saying “the fact that you choose to present this data means that you reject the core tenants of my beliefs and therefore you are wrong”.
Also, it’s quite possible to believe in the principles of supply and demand in a free market while simultaneously believing that the price of oil is determined by a political cartel that is motivated by protectionism and other concerns that override supply and demand in this particular case. Or is your belief in supply and demand so strong you believe it is actually impossible for prices to be artificially inflated?
Eytan, first off, look at the graph Amp presents. If you’re going to try to correlate to “oil production”, why use “number of oil rigs”? Oil rigs aren’t a fungible item; an oil rig can be a little backyard pumper that produces five barrels a day, or a monstrosity from Mordor’s darkest imaginations that produces 200,000 barrels a day. The production from a rig of any size, in turn, varies with the age of the well and with how long it runs in a given period; a lot of those backyard dealies, for example, go dark when oil is $70 a barrel because they aren’t profitable at that price. When it bumps to $110, they run 24/7.
It’s not empirical data. It’s complete shit.
If Amp wants to make an argument that oil prices are cartel-controlled etc., then he should do so. It’s not a viable argument, because they aren’t, but what’s presented doesn’t even head in that direction, and so the conspiracy theory is not an effective rebuttal of an attack on the craposity of what has been presented.
It’s likely that U.S. oil production has a nonzero effect on U.S. oil prices. But U.S. oil CONSUMPTION (which far exceeds production) and other government policies have a larger effect, so any particular well is unlikely to have much of an effect on it. And even less so in the future.
The question “should we drill in ___ location in 2014?” has very little to do with the question “how much will gas cost in 2016?” In that general respect, Amp’s right.
However, with respect to graph choice and data, Robert’s right. In particular, the choice to use “# of wells” rather than “# of gallons” makes no sense.
Even if this analysis were true – and, as Robert correctly points out, the graph shows nothing of the sort – I would much, much rather have American dollars go to paying wages for American oil field and refinery workers and enriching American capitalists, as opposed to helping fund people who hate us and want to kill us.
What this graph likely shows is that as the price of gas goes up, the more profitable it becomes to start operating wells that are marginal at lower prices. it doesn’t show the effect of well operations (or lack thereof) on oil prices – it shows the effect of oil prices on well operations.
@Ron: Did you know that most oil consumed in the USA comes from Nigeria and Mexico, not the Middle East? Middle Eastern oil mostly goes to Europe and East Asia.
–Robert
–RonF
It seems possible that there’s more than just “who’s got the lowest costs per barrel” going on.