Domestic production does lower price of gas

IPAA:

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• The U.S. market is a part of the global market.
 Just like every other market (food, technology, manufacturing), oil is traded on an international market. While U.S. petroleum consumption has fallen by some 2 million barrels per day since 2005, world demand for oil excluding the U.S. has risen by some 7 million barrels per day over the same period. That primarily reflects strong growth in the developing world, especially Asia. Because of the global nature of trade, increased U.S. crude oil production, which has significantly helped reduce U.S. oil imports, increase jobs and revenues, and enhance our energy security, is just one factor in a world market that is far from standing still. This is largely because the U.S. still imports about 45 percent of the petroleum it uses. International crises like the Libyan revolution of last summer and the recent Iranian threats to close the Strait of Hormuz have an impact on global oil supply. Increased oil production in America can help insulate our nation from these global supply shocks. On another note, although some complain about  the U.S. exporting diesel and gasoline, this actually helps offset some of the imbalance of trade that the U.S. has experienced in the past with regard to energy.

• Increased U.S. production does lower price of oil—regionally
. American oil production has helped lower the price of many of our domestic crude streams in comparison to internationally-priced Brent and other imported grades. As a result, relatively abundant supplies in the mid-continent have in recent times put market prices for West Texas Intermediate (WTI) crude at some $10-$20/barrel cheaper than imported Brent crude.  As of mid-March, the difference was running at about $20/barrel. Further up the supply chain, Bakken crude itself was trading some $17-18 below WTI several weeks ago. Because of increased U.S. oil production, mid-continent refiners have seen lower costs for increased domestically-supplied inputs, while East Coast (and Caribbean) refiners have largely been faced with the higher cost of imported foreign crude oil.

The chart shows how the spreads between Bakken, WTI, Louisiana Light Sweet (a Gulf Coast crude) and Brent have varied over time. Over this period, EIA data show that the average crude oil price paid by refiners has more than doubled, rising the equivalent of $1.35 per gallon, while retail prices of gasoline have risen by about 50%, or about $1.10 per gallon. One has to be careful in one’s expectations of price symmetry between the raw material and the product.

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The more we increase domestic production the more it will effect the global price, but also the less we will have to pay at the pump. There is also the added benefit to the US economy and the jobs created by domestic production of oil and gas.  Bakken and West Texas Intermediate are where the real growth areas are in oil production right now.  They are ares where Obama has the least influence.  If we increased production on federally controlled areas it would also reduce the price of gas.