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:
The United States has steadily [and the numbers do NOT include 2011] reduced the number of barrels per year. And the price of oil has increased.
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 decline in production still exists, but the relationship to that reduction doesn’t seem to be as pronounced.
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?
One obvious benefit to producing more oil in the US is the balance of payments . Just keeping more dollars in the US strengthens our debased currency. That has all kinds of benefits to every American. That is far beyond the mentality of our green brethren . Also to our green brethren who think drilling more oil in the US has no effect on price, all you have to do is look at how stable the price of fuel was when the country produced 100% of it’s oil, pre 1970 .
In 1973 the US was producing about what Saudi Arabia now produces. That was our peak. Now if we were to expand drilling everywhere we’d not get close to that level. I suspect that we’re better off focusing on post-oil energy sources, both for domestic consumption and ultimately to trade. The EU, which has met the Kyoto accord goals, now has a leg up on us in such technology and that has opened lucrative possibilities for them to trade with China. I think a primary focus on drilling is probably not in our long term economic interests. That said, I do think we should look to exploit natural gas reserves and expand drilling to help make the transition work. So I think the right is wrong to deride alternatives — alternatives are necessarily our future — but the left too often overlooks the need to assure the transition is smooth, and that requires continued exploration and exploitation of domestic oil and natural gas.
The left has an irrational hatred for oil . They block it every chance they get . The thing is, almost the entire price of drilling and producing more oil comes privately . Green energy always, always, always has to be subsidized and it mostly fails. All the left has to do is get out of the way and this country could go a long way toward solving it’s energy needs. They have been the number 1, number 2, and number 3 reasons for American energy problems. Let America produce all of the oil it can . When it runs out, the left can be happy. The problem is we just keep finding more.
And if the oil ever really does run out we have a century of natural gas we can run our cars on. And yes we can run our cars, trucks, and trains on natural gas a heck of a lot better than we will ever run them on batteries .
Alternatives are not our future . Not in my lifetime . They are a really good way to reward your donors though .