Debunking the drill-your-way-to-low-gas-prices myth

 

Something funny happened over the last few weeks. First, the price of oil started climbing. Then, the announcement came that U.S. fields were producing more oil than they had since 1989. Wait? Isn't that exactly the opposite of what's supposed to happen under the energy independence myth?

The myth goes something like this: The more oil we extract from U.S. ground, the less oil we need to import from the Middle East. As our dependence on Middle Eastern oil drops, so does the volatility of oil prices caused by geopolitical forces and supply chain disruptions. In other words, the more we drill here at home, the less we pay at the pump.

Nope. We’re now producing more oil domestically than we have since 1989. But back then, the price of oil was about $20 per barrel. Today, it’s over $100, which translates to the price at the pump. As the two graphs below show, domestic production has virtually no effect on oil prices. Whether oil is drilled in North Dakota or Kuwait, it’s tied into the global market, where prices are dictated by global supply, demand and geopolitical forces. Much of the new demand is coming from Asia, which has driven prices higher generally. Meanwhile, tension over the possibility of a U.S. military strike in Syria was to blame for the recent price spike. While we're getting a lot of oil out of North Dakota, it's not and never will be enough to dilute these global forces.

So much for drilling our way to energy independence and low gas prices.

U.S. oil production is higher than it's been since 1989. Graph by the author, based on data from the Energy Information Administration.

Oil prices shot up a decade ago, based in part on increased demand from China and India. After a big dip during the Recession, they went back up and stayed there, regardless of domestic production. Source: EIA.

Jonathan Thompson is a senior editor at High Country News. Follow him on Twitter @jonnypeace.

Kirk Hohenberger
Kirk Hohenberger Subscriber
Sep 24, 2013 03:48 PM
We could fix this. Simply ban the export of domestic oil and gas. It then would become a domestic price.And we might still have some reserves left for our kids.