Saturday, June 21, 2008

Energy Self-Sufficient and the Price of Gas

We have an interesting political discussion taking place between those that would like to see America exploit its own known and potential energy resources and those that are against doing anything of the kind, hoping the rest of the world will drill and refine oil in their own nations and sell it to us at cheap prices.

I am in the former category. However one question I have not heard or read about: what will producing more of our own oil do to the price of oil (or gasoline)?

Oil is a a global product. Prices are set by the global market. If we produce more oil within the USA, we will be adding to the world's supply. The world will still demand that oil, regardless of where it comes from. If oil companies A, B and C invest billions to extract that oil, they are no under any obligation to sell it to Americans for some politicians concept of a fair price -- below the world price for oil.

The world consumes X amount of oil each day; it produces Y. Speculators have little to do with the price, they merely bet on its price based on supply and demand principles. If the USA puts more oil into the market, the markets will react accordingly.

Supplying more oil to the world oil market is going to help all users of oil, not just American. So assuming we alone are going to change the price of oil and gasoline is naive thinking.

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