ABC News proving that their “fact check” needs a new headline:
FACT CHECK: More US Drilling Didn’t Drop Gas Price
This “FACT” stated by the headline is torn apart by the article itself.
The US produces 2% of worlds oil today. So if we increase our production by 10%, the impact on world Oil reserves is 1/5 of 1%. This supply can be easily offset by shifts by OPEC or the Saudi’s. They do touch on this basic truth, “That’s because oil is a global commodity and U.S. production has only a tiny influence on supply. ”
“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” Now oddly in this article it states that we supply “11% of the world’s output”. This would seem an odd contradiction to the President’s “2% of the world’s oil.” But it is not. The 2% number is based on the amount of oil under drill heads available for removal. The 11% is based on the actual removal of oil and places onto the open market. Neither of these numbers represent the actual amount of oil available to be tapped and used. Numbers very based on type of oil and industry versus government estimates. But the numbers are probably somewhere near 1Trillion barrels of oil (or 200 more years at current levels).
“ if the U.S. were to increase its oil production by 50 percent it would at most cut gas prices by 10 percent.” OK, the math is close (11% increased to 16.5% would impact the world market by about 10%). But this is flawed in two ways. First, if we were to double or triple our production so that we were a player in the market, then our impact would be felt much greater on the world market. But if you understand that markets are more dynamic than basic linear math, this even fails. If the US were to show it was serious in increasing it’s share of world markets the competitive countries would drop prices to try and keep us from attaining market share. Keeping us at 10% on the world markets allows them to control prices. The US being a player limits their independent control over the market and forces the prices to a lower level. Think about any other free market and the impact of a growing competitor.
More so, within this country, where the employment of high wage jobs, huge profits and taxes from oil sales would flood the country in money. How much of a lift would our economy get and how much good could we do with that money being here instead of in the Middle East deserts? How much less environmental impact would their be and free trade in not shipping the oil across the Oceans and through the Suez Canal? Why shouldn’t we be an oil provider in world markets?
The reason we impact the markets on Steel, food, technology, and wood is that we are still the world’s leader in those industries. It is simple market share. How much impact would a single farmer have on the price of corn world wide if he doubled his output? What is he had a complete loss? Now think what would happen if the Florida Orange crop was complete loss…oh wait that has nearly happened before.
“Also, a cold snap threatened the orange crop in Florida, which produces about 80 percent of the domestic orange juice supply. Futures prices soared to all-time high of $2.1995 per pound on Jan. 23″.
All in all the article is not wrong, but the fact check headline seems to push that there is not much that can be done. But reality is that a massive increase in US supply and new policies to continue to produce more and more, would drastically drive down oil prices world-wide.