President Obama Doesn't Just Say We Are Producing More Oil, We Are Producing More Oil

The NYT did some heavy-duty he said/she said reporting on the issue of gas prices and energy production. It devoted an article to President Obama's efforts to counter Republican complaints about high gas prices.

"The president said that the United States is producing more oil now than at any time during the last eight years, with a record number of rigs pumping."

President Obama did not just say this, it also happens to be true. There are reasons that people may not be happy that the United States is producing more oil (anyone hear of global warming?), but it happens to be true.

"But Mr. Obama warned that no amount of domestic production could offset the broader forces driving up gas prices, chief among them Middle East instability and the ravenous energy appetite of China, which he said added 10 million cars in 2010."

This is also a statement that can be verified. The United States currently produces around 6 million barrels a day. The world market for oil is a bit less than 90 million barrels a day.

It is the world market that determines prices, not domestic production. We're going to say that a few more times just in case any reporters are reading this.

It is the world market that determines prices, not domestic production. It is the world market that determines prices, not domestic production. It is the world market that determines prices, not domestic production.

The point is that we can only affect the price of gas in the United States if we can affect world prices. See, if we had lower prices in the United States than the rest of the world, oil companies like Exxon Mobil and British Petroleum would export oil from the United States to the rest of the world.

This is known as "capitalism." Companies try to make as much money as possible, which means that you sell your products where they can get the highest price. This means that the price of oil in the United States can only fall if the price of oil in the world also falls.

Okay, so now let's get back to domestic production. Suppose we drill everywhere -- underneath Yellowstone, the Capitol building, your backyard and favorite place of worship. Let's say we can increase domestic production by 2 million barrels a day, or roughly one third. This would increase the world supply by approximately 2.2 percent.

Under normal assumptions of elasticity of supply and demand, this would lead to a drop in prices of around 6 percent. That might be nice, but it won't get us from $4.00 a gallon gas to Newt Gingrich's $2 a gallon.

Furthermore, we will not be able to sustain this higher pace of production for long. The Energy Information Agency estimates that total U.S. reserves are around 20 billion barrels of oil. At the current production rate of roughly 6 million barrels a day, this stock will last around 10 years. If we upped production to 8 million barrels a day then we have around 7 years supply. That would mean that production would have to slow sharply before the end of President Drill Everywhere's second term.

In short, President Obama was making assertions about gas prices and energy that are true and can be proven. The NYT obviously assumed that readers have more time than its reporter to go to the web and look these things up, but that may not always be true.

"Obama’s position reflects the White House’s belief that gasoline prices are subject to cyclical spikes due to forces largely outside its control, including the rise in Chinese and Indian oil demand."

Yes, the White House believes that, "gasoline prices are subject to cyclical spikes due to forces largely outside its control, including the rise in Chinese and Indian oil demand," in the same way that it probably believes that the earth goes around the sun and gravity causes things to fall down. This happens to be true.

Oil discovery and production are price sensitive., Low-rated comment [Show]

Gas taxes
written by dean, February 24, 2012 6:44

Andrew,

most of that 47 cent a gallon tax is at the state level. Federal taxes are 18 cents a gallon.

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written by ComradeAnon, February 24, 2012 7:52

How much of the increase is due to oil futures speculation?

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written by Rogermac, February 24, 2012 8:02

Another factor that cannot be mentioned too often is that domestic oil is not US oil, it is oil company oil. The relationship of a big domestic transnational oil company to the US is essentially that of a foreign power with the strange ability to rent our military on the cheap.

Gas
written by Jennifer, February 24, 2012 8:06

YES YES YES! Of the many ridiculous suggestions of the media this is one that really drives me crazy. For all the talk of gas prices NOBODY does this simple anaylsis--that is really just (the all knowing all powerful) market at work. It is just another example of people's selective like of capitialism--useful when it works for THEIR particular needs. If it doesn't, then it's not capitialism. NPR has run a few stories on this increase in energy production but not with the related point that it will not have a significant effect on prices.

Not Exactly
written by Paul, February 24, 2012 8:22

The price of oil in the U.S. (WTI) is cheaper than Europe (Brent) because oil cannot be easily exported from the U.S. So getting more oil into our market would drive prices lower. For example, what would be the effect of the Keystone pipeline on domestic supply?

Second, gasoline supply is affected by refinery capacity which is low. Since we don't want more refineries built here, we should build them in nearby countries, i.e., Mexico, and build a gasoline pipeline to the U.S.

Finally, trucks and buses that operate locally should be converted to natural gas to save oil and air quality. Obama should be doing these things instead of making excuses.

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consistency
written by Downpuppy, February 24, 2012 8:27

90 million barrels a day is the all liquids number. By that measure, the US produces 9 or 10 million barrels a day, depending on how you count.

The crude total of 6 in the US corresponds to a world total of about 72-74.
Yes, just bing fussy.

while all this is true
written by Brett, February 24, 2012 9:14

Oil prices are rising right now because of belligerence from the US and allies towards Iran. Oil traders are an easily disturbed bunch -- they take any worrisome trends as a sign to go long on oil.

Sanctions on Iran and talk of war on Iran (and Iran's subsequent bellicose rhetoric in response to US/Israel aggressive words) is driving the price of oil up.

In this case, Obama is responsible for the higher oil prices. And so are the GOP and anyone advocating that we need to bully and push Iran to stop a nuclear weapons program that we have no intelligence (says the DoD and CIA) that they are even pursuing.

Juan Cole has the details here: http://www.juancole.com/2012/0...t-all.html

Price of Gasoline
written by Bart, February 24, 2012 9:30

Paul: Gasoline is more expensive in Europe because of vastly higher taxes.

Journalism's fear of identifying the truth.
written by William Berkson, February 24, 2012 9:38

I'm afraid some commenters are not getting Dean's main point here, which to me is extremely important: journalists are now regularly afraid to identify what is true. They are thus failing in one of their main duties in a democracy. More here: http://therepublicon.blogspot....ainst.html

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written by David, February 24, 2012 10:28

Bart: The retail cost of gas in Europe is higher than the US, but Paul was comparing the pretax benchmark prices of crude oil. Although I disagree with his interpretation of the price gap between Brent and WTI, too, that it has to do with transportation costs. Brent is euro denominated, so at least part of the higher price can be attributed to factoring in concern about the euro's viability. But both prices are benchmarks--most oil doesn't come from the US or North Sea, that's just how it's priced.

The discovery of massive natural gas reserves in the US and elsewhere are going to shift the whole energy market, so I think it's dangerous to extrapolate too much from current trends in petroleum. But Dean's point still stands. The NYT and Post shouldn't present something as an opinion when it's an easily verifiable fact.

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written by Union Member, February 24, 2012 10:36

Journalists have a responsibility to rigorously practice the opposite of the demagogues axiom, which is: The truth repeated often will become true.

OIL is More Expensive in Europe
written by Paul, February 24, 2012 11:01

Brent crude is always higher than WTI because of local market conditions.

Obviously, the U.S. market needs more supply of gasoline, but we don't have it because we lack refinery capacity. We need more crude too but our pipeline capacity is limited. No doubt the oil giants are manipulating the market, but Obama is doing nothing to stop them.

Converting our vehicles to natural gas would be a real solution, but that's not happening either.

why wade into reserves
written by tew, February 24, 2012 11:36

You spoiled a good and entertaining article by including an incorrect analysis of production, reserves, and depletion. You've got to include exploration and probable reserves.

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written by El Foley, February 24, 2012 2:54

I just learned that only about 3 million bopd are priced at WTI. There are many prices in the U.S. one of which is a south Louisiana light @ about $116. Also, the U.S. does not have a lack of refining capacity. Even though we haven't built a new one in a long time the existing ones were expanded greatly. You know that at least two NE refineries are shutting down now as is one in the U.S. Virgin Isl. and we are presently a net exporter of refined products.

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written by fuller schmidt, February 24, 2012 5:50

Oil was $147 in '08 and $37 in early 09'. That drop reflects the leverage in oil prices. And it's a new phenomenon, one that's due to rule changes made to favor Wall St. banks getting into the oil (financialization) business. Oil's Endless Bid lays it all out.

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written by S. D. Jeffries, February 24, 2012 10:03

What's the matter with journalists these days? Are the publishers telling them not to write facts and instead write every article from the perspective of argument? I'm with Brad DeLong: Why oh why can't we have a better press corps?

That which shall not be named
written by RobertHurst, February 25, 2012 2:25

That which shall not be named, by the press, by the president, apparently by anybody who comments on gas prices these days: Depletion. Ongoing depletion of existing supergiant fields, often said to take about a 4% chunk out of global production each year. Also, decline in available exports, even if production stays the same. Oil producing countries are using much more of their own production. So...you'd better ramp up your shale, and everything else, if you want to stay even.

These two factors, ongoing depletion and available exports, are the most important, and the least discussed.

Obama panders on energy just as much as the republicans, just differently.

http://industrializedcyclistnotes.com

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That's why we need President Frothy Mix
written by Matt, February 25, 2012 12:02

...in the same way that it probably believes that the earth goes around the sun and gravity causes things to fall down.

Clearly, this is why we need Frothy Mix for President - he probably doesn't believe *either* one... ;)

reserves caveat
written by Barkley Rosser, February 27, 2012 3:21

Dean's post is mostly correct, all too much so. However, one caveat is that not too much should be made of official reserves measures. These are what is fully verified as there and can be obtained at current prices profitably with current technology. It is well known that these numbers are often rising over time for many commodities and of course are endogenous to prices. However, the main points of the post are dead on.

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President Obama Doesn't Just Say We Are Producing More Oil, We Are Producing More Oil

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