On the campaign trail, Newt Gingrich keeps insisting that if America drilled for more oil, we could return to the days of $2.50-per-gallon gasoline. Michael Conathan says this is dubious, noting that drilling has been booming since 2009, yet gas prices keep rising:
Why is this? Because oil prices are set on a world market, and there are a whole bunch of factors that affect prices. A healthier global economy means more global demand for oil. That pushes prices up. A new wave of middle-class consumers in China and India have been replacing their bikes with automobiles. That pushes prices up. Oil fields are declining in countries like Mexico. That pushes prices up. Saudi Arabia seems to be running low on spare capacity. That pushes prices up. Tensions in Iran have prompted traders to set oil aside for potential supply disruptions in the future. That pushes prices up.
America’s domestic oil production, by contrast, is a small part of the global picture. Dean Baker lays out some numbers: “U.S. production is roughly 8 million barrels a day, it accounts for less than 9 percent of a world-wide market that is close to 90 million barrels a day. Even if U.S. production could be increased by a third (an almost impossible increase) it would only increase world supply by 3 percent. This would lower the price of oil by 7-8 percent. This is not trivial, but it is not the difference between $2 a gallon gas and $4 a gallon gas.” Yes, more drilling could allow us to reduce our oil-import bill, and that’s no small thing. But drilling alone can’t bring back $2.50-per-gallon gasoline.
At best, there are only a few minor things the United States could try to do to influence gasoline prices right now. U.S. diplomats could try to resolve the conflict with Iran, which would calm the jittery markets. The White House could order a release of oil from the Strategic Petroleum Reserve, although analysts say this likely wouldn’t have a signficant impact on oil prices. If Congress really wanted to get creative, it could even shell out a bunch of money to prevent gasoline refineries from going bankrupt. (Okay, that last one isn’t a serious proposal, but refinery closings havehelped nudge up gas prices in states like Pennsylvania.)
By and large, though, the country’s main option is the hard, boring option — the United States could try to become less dependent on oil, so that rising prices aren’t quite as difficult to cope with. In the past few years, as oil prices have risen, the United States has gotten better at squeezing more and more economic activity out of a given barrel of oil. And, presumably, oil-efficiency will rise further once the White House’s new fuel-economy standards take effect. But boosting efficiency can prove a slow process, and, so far, it hasn’t been quick enough to offset rising prices.