Iowa Public Television

 

More Oil Drilling Doesn't Always Mean Lower Gas Prices

posted on March 30, 2012


Mitt Romney. Republican Presidential Candidate: "This president who’s had an election year conversion. Now he wants to bring gas prices down. Well, the place to start is the firing the three people he’s hired in the first place, and the place to finish is getting rid of him and putting into place someone who understands what it takes to get energy out of our own ground.“

It's the political cure-all for high gasoline prices: Drill here, drill now. But a comprehensive study conducted by the Associated Press reveals increased U.S. oil production has little effect on gas prices.    

Statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and domestic oil production shows no direct correlation between drilling and the price motorists pay at the pump.

And if more domestic oil drilling worked as some politicians say, unleaded would cost a little more than $2 per gallon.  Instead, the national average is nearly $4 ... a record-high for March.

Sen. John McCain, R - AZ: "We’ve got to drill off-shore. Drill here, drill now, drill now."

According to the Associated Press, campaign  promises to lower gasoline prices - be they Republican claims this election cycle or those of Democrats four years ago - simply are NOT supported by hard data.  

Sometimes gas prices actually rise as American drilling increases. That's what has happened over the past three years. Since February 2009, U.S. oil production grew 15 percent.  But retail gasoline prices also increased from $2.07 per gallon in February of 2009 to $3.58 in February of 2012. 

Domestic oil production peaked at about 9.5 million barrels per day in 1970.  Production declined significantly in most of the years since, until about 2008, when new -- and by some accounts controversial -- methods of drilling called hydraulic fracturing, unlocked reserves previously thought to be inaccessible.  Today, U.S. oil production is about the same as March of 2003, when gas cost about $1.69 per gallon.  Adjusted for inflation, that gallon of unleaded would cost $2.10 in 2012 dollars, yet the current national average price in March is nearly $4 per gallon.    

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 congress or a president dictate the price of gasoline.

When you put the inflation-adjusted price of gas on the same chart as U.S. oil production, the numbers sometimes go in the same direction, sometimes in opposite directions. If drilling for more oil always resulted in lower gas prices, the lines on the chart would consistently go in opposite directions. Yet, AP's statistical measure of correlation found no link between the two. 

Newt Gingrich TV AD: "Since Barack Obama’s inauguration, gas prices have doubled. They didn’t go down when Obama bowed to Saudi oil Princes.”

The AP analysis directly contradicts Newt Gingrich's 2008 book "Drill Here, Drill Now, Pay Less," as well as the campaign-trail claims of other Republican presidential candidates.

GOP frontrunner Mitt Romney also favors expanded drilling and has called on President Obama to lift restrictions in the Gulf of Mexico, the Arctic National Wildlife Refuge and elsewhere.

Yet, the late 1980s and 1990s reveal a dramatic disconnect between domestic oil production and gasoline prices.  Between 1986 and 1999, domestic oil production plummeted by nearly one-third. And starting in March of 1986, inflation-adjusted gas prices fell below the $2-a-gallon mark and stayed there for most of the rest of the 1980s and 1990s. If the "drill-now" theory was correct, gasoline prices should have soared. Instead, they declined nearly a dollar.

The Associated Press analysis used Energy Department figures for regular unleaded gas prices adjusted for inflation to 2012 dollars.  The results were corroborated by public and private statisticians and economists, who added that since the U.S. accounts for little more than 10 percent of global oil production there is little that the America can do on its own to lower gasoline prices.  

Senator Barack Obama on Iowa Press, November, 2007: “One of the reasons that we’ve got oil at close to $100 a barrel is because of the saber-rattling that the Bush Administration has been engaging in with respect to Iran. About a third of that cost is really the spot market saying there may be war.”

Candidates often lament high gas prices when it's politically convenient. While he was seeking the Oval Office in 2008, then-Senator Obama reminded voters that gasoline had more than doubled since George W. Bush took office.

But Obama, who has seen gas prices go up 73 percent since he took office, now acknowledges the price of gas depends on a lot of factors that are often beyond any president’s control.

President Barack Obama: “We could drill every drop of American oil tomorrow but we’d still have to buy oil from other countries to make up the difference.  We’d still have to depend on other countries to meet our energy needs.”

The political party of the president doesn't seem to affect the price at the pump much either. Since 1976, the average monthly gas price, adjusted for inflation, during Democratic presidencies has been $2.25 per gallon; under Republicans it's been $2.74. Obama has the highest monthly average at $3.05 and Bill Clinton the cheapest at $1.68.

And when George W. Bush campaigned in 2000, he argued that as an oil executive he could get oil prices reduced, by working with OPEC to increase supplies.  Yet it was during the last few months of Bush's term in 2008 that gas prices soared to an all-time inflation-adjusted high of $4.27 per gallon. 

For Market to Market, I'm John Nichols.


Tags: Associated Press Barack Obama economy environment fracking gas gas prices gasoline John McCain midwest Mitt Romney news oil oil drilling production