Warning: The following is Satire.
I am an economists and now I must admit after reading an CBS/AP story that the oil industry is unlike any other market. In other markets, increasing the supply of a good decreases its price because of increased competition. But according to a statistical analysis by the Associated Press, this does not apply.
A statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and U.S. domestic oil production by The Associated Press shows no statistical correlation between how much oil comes out of U.S. wells and the price at the pump.
Of course politicians have been using our false understanding of economics to persuade us that drilling would actually reduce prices. But as the AP points out:
If more domestic oil drilling worked as politicians say, you’d now be paying about $2 a gallon for gasoline. Instead, you’re paying the highest prices ever for March.
In fact, U.S. oil companies have been fooling us. Not only does increasing supplies NOT reduce prices, it ACTUALLY INCREASES THEM! (Who knew??)
Sometimes prices increase as American drilling ramps up. That’s what has happened in the past three years. Since February 2009, U.S. oil production has increased 15 percent when seasonally adjusted. Prices in those three years went from $2.07 per gallon to $3.58. It was a case of drilling more and paying much more.
And they prove the point by indicating how much we have been increasing our production compared to the past:
U.S. oil production is back to the same level it was in March 2003, when gas cost $2.10 per gallon when adjusted for inflation. But that’s not what prices are now.
WOW! Oil production has increased so MUCH we are producing more oil than we ever have. We now are….producing…eh….the same as…..2003? The rest of their evidence is just as convincing.
When you put the inflation-adjusted price of gas on the same chart as U.S. oil production since 1976, the numbers sometimes go in the same direction, sometimes in opposite directions. If drilling for more oil meant lower prices, the lines on the chart would consistently go in opposite directions. A basic statistical measure of correlation found no link between the two, and outside statistical experts confirmed those calculations.
There you have it conclusive statistical analysis that domestic production has no influence on price (other than as already stated to actually increase it) Actually, thinking about it, this behavior may even occur in other markets. I remember how production of SUVs went up dramatically in the 1990s…and guess what???? So did prices!!! Will the greed of U.S. companies never end? I mean not only do they get an increase in sales but geez then to put a price increase on top of it to boot!
Of course the AP, determines the root of these mistaken theories about increased supplies lowering prices and as you might have guessed it is those Republicans:
Drill, baby, drill has nothing to do with it,” said Judith Dwarkin, chief energy economist at ITG investment research. Two other energy economists said the same thing and experts in the field have been making that observation for decades.
The statistics directly contradict the title of GOP presidential candidate Newt Gingrich’s 2008 book “Drill Here, Drill Now, Pay Less,” as well as the campaign-trail claims from the GOP presidential candidates.
The AP shows that many Republicans continue to poison the political debate with this nonsense:
Earlier this month, GOP front-runner Mitt Romney said of his solution to higher gas prices: “I can cut through the baloney … and just tell him, ‘Mr. President, open up drilling in the Gulf, open up drilling in ANWR (the Arctic National Wildlife Refuge). Open up drilling in continental shelf, drill in North Dakota, drill in Oklahoma and Texas.'”
Senator Lisa Murkowski, clearly giving aid to these clearly greedy oil companies, tries to sell this idea:
Sen. Lisa Murkowski, R-Alaska, said on the Senate floor last week, “With oil prices above $100 a barrel and gasoline soaring toward $4 a gallon, greater production is not a political opportunity, it is a legislative imperative.”
Shame on you Senator! Have we not paid enough for oil with your crazy ideas to increase supply?
We tried Senator Murkowski’s way just last year. As the AP indicates, domestic oil production increased in one month last year ‘as much as the Keystone XL pipeline would produce each month. Guess what happened?
- You guessed it! Prices increased by 10 cents per gallon!
In fact, statistical analysis by several current and former college professors even using “several complicated formulas” came to the same conclusion. As one of these professors concluded:
When U.S. production goes up, the price of gas “is certainly not going down,”
The AP even points out the greed of Former President George Bush and his former oil executive vice President campaigned in 2000:
When Bush and running mate Dick Cheney campaigned in 2000, they argued that as oil executives they could get oil prices down, with Bush saying, “I would work with our friends in OPEC to convince them to open up the spigot, to increase the supply.”
Ah oil buddies. Sure prices fluctuated between a high of $3.11 (of course oil executives claim this was a result of the domestic “supply disruption” due to Hurricane Katrina but we now know if that had been true prices would have fallen with the reduced supplies!) and a low of $2.11 with an average over his term of less than $2.86. But Bush and Cheney were being very clever. They kept prices low until it was clear that they would not be re-elected. As the AP shows:
Yet it was during the last few months of Bush’s term in 2008 that gas prices hit their highest: $4.27 when adjusted for inflation.
I cannot believe how foolish I have been thinking that increasing supplies reduced prices and thinking that suppliers supplied more when prices went up. Clearly, it is increased supplies that cause prices to rise.
Now the world makes so much more sense to me. No wonder electricity prices go up in the summer: Electricity companies are producing more of it! And Disney should be ashamed of how they have expanded the number of attractions at Disney World (EPCOT, Hollywood Studios, Animal Kingdom) I’m sure the price has gone up a result. And we all know how expensive airline travel is around certain holidays…now we know why: I remember reading about how airlines increased the number of flights around certain holidays. Have they no shame?
Clearly, there is only one thing to do. We know how dirty oil is to produce and the environmental damage it can do. We need to ban all domestic drilling. We can save the environment and as the AP analysis shows prices will probably go down!