Home Drilling Does Little to Lower Gas Prices

Study finds domestic production has little impact on pump prices

   

TexasCrudePump240 Home Drilling Does Little to Lower Gas PricesWith pump expenses on the rise, and anxiety building around fuel prices, it would be a relief to hear that America has a direct means of modulating the price of gasoline. However, it appears that ability may be more or less out of reach.

A new Associated Press release suggests that escalating domestic crude output ultimately has little impact on the price of American gasoline. The gist of the report outlines that the price of gasoline sold at home is defined by the vagaries of the global fuel economy. In light of the complications inherent to oil macroeconomics, an increase in domestic drilling doesn’t hand us the means to otherwise knock down the price of fuel sold on American soil.

Americans are naturally upset that the national average is inching closer to $4 per gallon. Unease around the spike in gasoline prices has been a lightning rod for commentary this election cycle, with many politicians using it as a starting point for rhetoric both controversial and banal. Presidential contender Newt Gingrich penned a 2008 book titled Drill Here, Drill Now, Pay Less, and has made reducing gasoline prices a focal point of his election bid.

However, stump rhetoric aside, here are some central findings of the AP domestic drilling study:

  • The study encompassed a 36-year retrospective analyzing the monthly (inflation-adjusted) price of gasoline against the contemporary quantity of domestic oil production.
  • The volume of crude America produces has no reliable correlation to the domestic price of gasoline. Oddly, gasoline price often increased with production volume.
  • U.S. oil production has risen a full 15% between February 2009 and February 2012, returning to domestic production levels circa 2003. However, gasoline prices have increased over the same period, with the value of a gallon rising from $2.07 to $3.58.
  • The Keystone XL pipeline would bring an estimated 25 million barrels into the U.S. per month. This is equal to the overall increase in monthly production between February and November of last year — a period in which the price of a gallon climbed ten cents.
  • In another counterintuitive finding, seasonally adjusted monthly oil production steadily dropped between 1986 and 1999. Adjusted for inflation, the price of gasoline also dropped in the same period — by about a dollar per gallon.

Ultimately, the United States lacks the power to change the supply-and-demand equation for the global crude market. While America may have significantly more leverage to do so for electricity and natural gas, similar influence over fuel prices remains beyond our reach.

Adam Patterson is an Assistant Editor of InvestorPlace. You can follow him on Twitter @ToweringBabble.

The opinions contained in this column are solely those of the writer.

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