(broadly defined), based on EIA data. (The Oil Drum)
It took former Maryland Lt. Gov. Michael Steele to turn "drill, baby, drill" into a GOP mantra. But the spirit of that call has been with us for a long time. In essence, open up every acre of the nation's public land to the driller's bit and not only will the United States be energy independent, but also the price of filling up your Hummer tank will plummet. It's a BS claim whoever makes it. Political rhetoric on the subject just doesn't match what's actually going on. What a surprise.
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Republican candidates for the presidency have been harping on this nonsense again in the latest election cycle, with Newt Gingrich taking the lead role after Michele Bachmann bailed. This view of gasoline prices is one of two things: distortion of reality for political gain; or stupidity about how the global oil market works presented by the party that prides itself on understanding economics when nobody else supposedly does. Venality or stupidity. Take your pick.
The price of oil internationally is what has the greatest impact on the price of gasoline. It's true that the international price is distorted by geopolitical tensions in oil-rich regions, commodity speculators and large national monopoly producers stepping up or lowering what they pump out of the ground at any one time. Oil-rich countries may subsidize gasoline prices at home to keep them from being affected by the global market. But the key pricing factor is that when the world economy grows, demand for oil grows.
Given limited supplies, that growing demand drives the global price up. China and India have had a strong effect in that drive lately. U.S. domestic oil production's contribution is only a small proportion of that world market. Even doubling that production would barely budge the international price.
What Borenstein and Gillum found was that sometimes gasoline prices rise when domestic drilling increases. In fact, that is exactly what has happened in the past three years. Domestic oil production is up 15 percent since February 2009, back to where it was in March 2003, but prices in that three-year period have risen from $2.07 per gallon to $3.58. "It was," they write, "a case of drilling more and paying much more."
Supporters of the controversial Keystone XL pipeline say it would bring 25 million barrels of oil to the United States a month. That's the same increase in U.S. production that occurred between February and November last year. Monthly gas prices went up a dime a gallon in that time.With American oil production running about 11 percent of worldwide output, says Christopher Knittel, a professor of energy economics at MIT, the U.S. could expand its oil production by 50 percent and, at best lower gasoline prices by 10 percent. But it couldn't increase production that much even with all that drilling Republican politicians and oil companies want to see in the Arctic, in other currently protected on-shore and off-shore public lands and that the Keystone XL pipeline would deliver.
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.
"There are not many markets where the United States can't impose its will on market outcomes," Knittel said. "This is one we can't, and it's hard for the average American to understand that and it's easy for politicians to feed off that."Drill, baby, drill certainly helps boost oil company profits at the overall expense of the environment and the risk of catastrophes like the BP blowout. But it won't do anything to get us where we need to be going: ending the extraction and burning of fossil fuels. And it won't even accomplish the electorally advantageous goal of lowering gasoline prices.