Addressing all the B.S. about gas prices

It seems to be that the 2nd most popular attacking point on the Obama administration (after national debt) is the rising cost of fuel. This is a campaign that has been launched by the Republican Party to garner support from those who are unknowing of how the global economy works and unwilling to try and figure it out. They know there is nothing significant they, Obama, or anyone else can do about it. But they also know that chances are YOU don’t. So here are the facts of the matter;

1. Oil production in the U.S. has increased from 2008 to 2009 (by 410,000 barrels) and again to 2010 (by 151,000 barrels) to end at around 5.5 million barrels a day. The last period of oil production growth occurred in 1991, and before that the last time was in 1985. These statistics are courtesy of the U.S. Energy Information Administration and I have not found data for 2011 as of now. The 5.5 million does not come close to the roughly 20 million barrels a day American Consumes but this is just to address the accusation that Obama has cut our production of Oil. Some say this supports drilling for more oil in the U.S. to bring down prices. I’ll address this later on in the post.

2. Others have mentioned expanding oil refining as a solution. The U.S. oil refineries in operation have the capacity to handle almost 18 million barrels of crude. A lot closer to that 20 million barrels that we consume. However; these refineries are only operating at 85% as of last week. Obama’s fault or profit seeking companies trying to restrict supply to drive up prices? Regardless, expanding refining capacity doesn’t really serve a whole lot of purpose unless we can bring our oil production up to meet refining capacity. Information again courtesy of the EIA.

3. It takes years to develop an oil field and begin actually producing oil. Estimate provided by the EIA says 10 years as A LOT of planning and engineering is obviously required. Now I will make the acknowledgement for you that a significant portion of this time is not necessary and is composed of a lot of regulatory and legal mumbo jumbo resulting from groups and individuals opposed to it. So I will be generous and say 4-5 years in a best case scenario.

Now, given the above 3 facts, assume that the U.S. some how manages to DOUBLE its oil production in the unlikely time frame of 5 years to arrive at 11 million barrels a day (I’m giving extremely optimistic examples to demonstrate how not accurate many claims are). The impact is not going to be very significant. Believe it or not we live in a GLOBAL economy and prices are dictated by a GLOBAL supply and demand. U.S. oil producers are not going to sell just in the U.S. at significantly cheaper prices when the world’s demand for oil would allow them to seek higher prices on the international market. Therefore any reduction in price is going to be a result of the net increase in Global oil supply. The current Global oil production capacity sits just shy of 90 million barrels a day. Adding 5.5 million barrels to that equates to a 6.1% increase in global supply. Now in a very hypothetical market that has no other factors such as increase in demand, profit maximizing companies, etc, this might result in an almost equivalent price reduction of 6.1% at the pump. I believe the average U.S. price of gas is currently $3.72, so enjoy your 22.7 cents per gallon you save.

I again emphasize that the previous example is an extremely favorable and non existent market. In reality the 5.5 million increase in production over 5 years would likely be offset by a global increase in demand, especially coming out of a world wide recession. China alone could potentially offset this increase in supply as their oil consumption increased by almost 1 million barrels from 2009-2010 alone. If the U.S. operated as its own separate economy then this would theoretically work, but we are not.

Russia for example is the largest oil producer in the world. Whats their average gas price per gallon right now? A little over $3.40 and that is largely because they have a lower tax on gasoline.

So bottom line is that there is no way that any one person or administration can significantly lower gas prices. They are determined by forces outside of the U.S. government’s control. As of right now the large spike in gas is because of the large spike in oil because of all of the conflict and uncertainty in the middle east which is where a large portion of the world’s oil comes from. Not because of Obama’s policy. The republican candidates know this, hopefully now you do too. Our best bet is to invest and subsidize alternative, cleaner, and cheaper fuel development. As Obama has done.

(I again state that all statistics are the Energy Information Administration, except the Russia gas price which was calculated from this site