U.S. Oil Is Limited and Fungible, the HuffPost Reports

The Huffington Post’s Michael McAuliff has a good piece of reporting on the potential impact of a bill the House passed last week that would make it easier to drill for oil.

The HuffPost pulls a couple of quotes from Republican House members to show the flawed thinking behind the bill:

“I think high gas prices and high energy costs are crushing jobs and are just unnecessary,” Rep. Glenn Thompson (R-Pa.) told The Huffington Post. “When we have access to domestic resources, gas prices go down. That’s what happened in 2008 when Bush opened up the outer-continental shelf.”

It’s hard to know whether Thompson is just being a particularly disingenuous politician or whether he truly believes what he’s saying. Any impact opening that area up to drilling may have had is barely worth mentioning next to that whole global near-depression thing, not to mention the then sharply rising dollar.

But the more important reporting is on this, which we start to hear ad nauseum every time prices spike at the pump:

“Republicans are standing with the American people, who want us to increase the supply of American energy that will lower costs, reduce our dependence on foreign oil, and create jobs here in America,” House Speaker John Boenher (sic) (R-Ohio) proudly declared. “And I’m certain — with $4 per gallon gas — the American people will remember who listened to them, and who didn’t.”

The really dumb thing here is the implication that drilling for oil in the U.S. will drive down U.S. prices more than those of others. Oil is a fungible commodity, sold on the global market to the highest bidder, as McAuliff points out.

And we just don’t have that much oil anymore, anyway. Even if we started producing enough oil to cover our own usage, the price benefits would go to everyone globally, not just us (unless we erected huge trade barriers, which I’m guessing these Republicans wouldn’t want to do). And even then the Saudis would presumably tap on the brakes to keep prices from falling through the floor.

“You might, under really optimistic scenarios, over five or six years, add 2 million barrels a day of production,” said Lynch, who favors more drilling, even if he rejects the politicians’ arguments. “On a global scale, it’s significant. But we would still be big importers — we would still be dependent on foreign oil”…

“In 2009, the U.S. produced about 7 percent of what was produced in the entire world, so increasing the oil production in the U.S. is not going to make much of a difference in world markets and world prices,” said the EIA’s Martin. “It just gets lost. It’s not that much.”

The HuffPost has some missing context here, like how much oil the U.S. and the world uses. We consume 19 million barrels a day and the world uses 84 million barrels a day. Those numbers would be useful in showing how small even Lynch’s pie-in-the-sky number is.

There are real benefits to increasing U.S. drilling for oil: More jobs, profits for ostensibly American companies (which is, of course, what this push is mostly about), and taxes. But there’s a downside: The easy-to-reach oil is almost all gone, and there are real costs to drilling ever further afield, as we’ve seen with the BP disaster.

Lowering our gasoline bills isn’t a factor. It’s a fake issue designed to get popular support for policies that benefit a small minority.

Keep that in mind next time you hear a politician talking “drill, baby, drill.”

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum. Tags: , , , ,