There have been some interesting phenomenon occurring in domestic oil markets that should but probably won’t impact the political debate around further domestic drilling.
Oil production is actually booming in the U.S., which should theoretically drive down oil prices. But the opposite is happening. Oil is actually up 9.5 percent this year and continues its long term trend north.
The Wall Street Journal’s Christian Berthelsen and Nicole Friedman recently pointed out this issue. They write:
The rally is the latest example of how the boom in North American oil output is no guarantee of abundant—or cheap—U.S. crude. The increasing number of barrels that are making it to Gulf Coast refiners are being processed into fuels and exported. Meanwhile, a cold winter is helping to drive up consumption of distillates, a category of fuel that includes heating oil, at home.
One of the continual problems with global oil prices is that the producers (and not just OPEC) can to some extent control prices by controlling output. And if the U.S. winds up a major exporter because global prices look attractive to producers, there’s no reason that those producers won’t keep exporting. In the Middle East, the government controls production and delivers subsidized and cheap oil to its citizens. That’s not the case in the rest of the world.
So as everyone jumps on the drill now bandwagon to lower oil prices, keep in mind that such a strategy hasn’t empirically worked.