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Home Publications Blogs Beat the Press NYT Does Free Promotion for Oil Industry

NYT Does Free Promotion for Oil Industry

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Friday, 29 August 2014 05:19

The NYT noted that gas prices remain relatively low in spite of the fighting taking place in or near several major oil producers. In an article entitled "a new American oil bonanza, it told readers:

"The reason for the improved economics of road travel can be found 10,000 feet below the ground here, where the South Texas Eagle Ford shale is providing more than a million new barrels of oil supplies to the world market every day. United States refinery production in recent weeks reached record highs and left supply depots flush, cushioning the impact of all the instability surrounding traditional global oil fields."

The piece also includes a chart showing daily production at around 2.5 million barrels more than its pre-recession level. While this increased production has undoubtedly had an impact on world prices (it is world prices that matter -- oil is bought and sold in the global market), so has declines in demand. There has been a sharp drop in vehicle miles driven compared with projected travel.

                                                           

                                       Vehicle Miles Traveled: Total and Per Capita

http://www.ssti.us/wp/wp-content/uploads/2014/02/2014-VMT-chart.jpg

                                                       Figure 1. VMT trends for the United States through 2013. Source: FHWA and Census Bureau.

If per person consumption had risen in line with the projected trend, it would be around 15 percent higher than it is today. Since U.S. oil consumption is around 19.0 million barrels a day (not all of it is for gasoline), this means that the reduction in driving below its trend path is saving us around 2.5 million barrels of oil a day, roughly the same amount as the increase in production.

In other words, this article could have been dedicated to the bonanza from conservation and told readers how all the happy people interviewed are enjoying lower gas prices because many people across the country (and the world) are now driving less than was projected based on prior trends. The piece then could have focused on mass transit or other factors that are leading people to drive less. (unfortunately, one of these would be the weak economy.)

Comments (1)Add Comment
Relatively Low Gas Prices Tripled to Maintain Relatively High Revenue from Relatively Low Number of Drivers
written by Last Mover, August 29, 2014 7:34
Since U.S. oil consumption is around 19.0 million barrels a day (not all of it is for gasoline), this means that the reduction in driving below its trend path is saving us around 2.5 million barrels of oil a day, roughly the same amount as the increase in production.


Exactly. Any economist knows this as the point of unitary elasticity per capita where revenue spent per driver doesn't change with price. Prices went up, total production went up and per capita use went down.

If large numbers of drivers willing to drive leave the "driver road force" and stop driving because of devastating reductions in population growth combined with mass transit and ride sharing, total oil revenue will go into a death spiral from less use per driver as drivers take advantage of improved road economics via less congestion.

Of course the only way to avoid this catastrophe is to triple gasoline prices to maintain total revenue. The beauty of this solution is high prices will attract sufficient world supplies of oil to maintain American depots with a flush supply of refined oil that cushion the impact of instability from traditional oil fields, not to mention conservation effects of less use per driver.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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