The price of gas continues to go up. And I’m pretty sure it’ll continue to go up until just after Memorial Day. For some reason I think I remember hearing that Memorial Day is traditionally considered the height of seasonal highs of gas prices; I dunno. I guess I could look:
Typically, prices peak in the summer months, or around Memorial Day, as has been the case in 2010 and 2011
[ I love the internet ]
So we have about 2 more months to look forward to rising prices at the pump. Other than this causing Obama extreme discomfort, this sucks. It hurts people directly and indirectly; things that depend on the price of gas are going up as well.
So we all wanna know what we can do. And the biggest call from the Right is for the administration to increase drilling.
But would it help?
No. I don’t think it would.
At least in the short term. However, I do think that expansion of drilling would impact long term expectations in a positive way.
But there is data coming out that suggests it might not be the case. Last week I saw an article from the Associated Press that took on the idea that more drilling in the United States somehow impacts the price of gasoline in a positive manner.
A statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and U.S. domestic oil production by The Associated Press shows no statistical correlation between how much oil comes out of U.S. wells and the price at the pump.
And why is that?
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.
I have some sympathy for that line of reasoning. I do believe that oil is purchased in a global market and the prices are set globally, not locally. However, what is not set is the price of delivery. Depending on who you read, Keystone would have saved between $3 and $5 per barrel in shipping costs. Oil is at $103 right now so the savings are in the 3-5% range. If gas tracked oil exactly [ I suspect it doesn’t ] that would represent a 11 to 17 cent per gallon savings.
But anyway, my beef isn’t about Keystone now, it’s about the data the article is using. We don’t drill for gas, we drill for oil. So, if we really wanna see the impact that drilling has on the price of something, we should be looking at the price of oil.
I didn’t grab data month by month for the last 30 years, but I did grab the annuals for those 30 years. And this is what I get:
However, I did notice that not until about 2004 did the price really jump, so I graphed the trends ending in 2004. This is what I get:
The next obvious question is what happens to the data when the price of oil is adjusted into 2010 dollars? This is what I get:
I get the same looking trends but less direct. However, I’m still faced with the fact that beginning in 2004 something changed in the price of oil dramatically. Again, I took the data and stopped at 2004. This is what I get:
It’s almost 1 to 1.
I’ve spent the last couple of days thinking through what this might mean and I wonder this. What if:
Drilling chases price?