Economics 1121_mz_44mf_big_oil

Published on March 28th, 2012 | by Andrew Meggison

7

Big Oil To The Rescue?

With gas prices climbing Americans are freaking out and the oil companies are hearing their cry and not letting a good opportunity go to waste. You see, it will not be the government or the President who lowers the price at the pump, peace in the middle east will not be the fix all either. The true savior will be the big oil companies – or at least that is what the big oil companies have said.

The oil industry has laid out a set of proposal that, according to the oil industry, will instantly lower gas prices. The proposals are as follows: more domestic oil production; fewer environmental regulations; and not raising taxes on the oil industry.

The odd thing is that all of these proposals are not new – in fact these proposal by the oil industry have been around even before gas prices were hitting four and five dollars at the pump.

The bottom line here is will these proposals if implemented actually work? Analysts say no, not in the short term. While it is interesting to point out analysts do believe that the proposals by big oil could have positive long term effects of reducing the price at the pump, analysts say the publicized instant lowering of gas prices if these proposals are put into action will not happen.

More domestic oil production is not the answer. Again, this is not really a new proposal. Chants of “Drill baby drill” or similar slogans have been part of the American political scene for decades.  The oil industry has studies saying that if it was allowed to drill off both the East and West coasts and on all federal land that is not a national park and in Alaska’s national wildlife refuge, than the oil industry could produce another 10 million barrels of American oil a day by 2030. That is double America’s current oil output. Environmental impact aside, doubling the American production of oil a day is huge, but that will not happen until 2030. No instant fix here. The oil industry counters this argument by claiming that if the Obama Administration simply announced such a plan than speculation and anticipation of production would drive the price of oil down and thus an instant fix at the pump. Some say no way:

In fact, since President Obama has taken office American, domestic oil production has increased by 15% and the price at the pump has only increased.  The reason for this is because there are simply too many factors that play into the price of oil. One American policy is not going make a sizable dent in the global oil market especially with OPEC able to cut oil production at, practically, the drop of a hat.

Yes, Obama’s Environmental Protection Agency will propose new standards designed to cut air pollution and global warming on both refineries and fuels. The oil industry claims that the new standards alone could add anywhere from six to nine cents to a gallon of gas. However, this is a guess and the standards are not even in action yet and will not be until after the election. Again, the push for fewer environmental regulations is not fixing the problem faced by consumers right now.

The fact is the quick fixes put forth by big oil in America will not work because they are missing the current cost drivers of the oil market. America’s domestic policies do not matter. The President does not control the price at the pump any more than you do. Right now the price of oil is driven by fear, people are freaking out, and one of the major drivers is the fear of impending war with Iran.

The fear is that Iran’s 2.2 million barrels of oil a day in exports could be cut off, and worse, there is fear the 17 million barrels a day that flow through the Strait of Hormuz, one fifth of the world’s total production, could be disrupted by a conflict with Iran.

Oil at $150 a barrel could translate into over $5 a gallon at the pump. Scary indeed.

Source: cnn.com

Andrew Meggison was born in the state of Maine and educated in Massachusetts. Andrew earned a Bachelor’s Degree in Government and International Relations from Clark University and a Master’s Degree in Political Science from Northeastern University. Being an Eagle Scout, Andrew has a passion for all things environmental. In his free time Andrew enjoys writing, exploring the great outdoors, a good film, and a creative cocktail. You can follow Andrew on Twitter @AndrewMeggison

 



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About the Author

Andrew Meggison was born in the state of Maine and educated in Massachusetts. Andrew earned a Bachelor's Degree in Government and International Relations from Clark University and a Master's Degree in Political Science from Northeastern University. In his free time Andrew enjoys writing, exploring the great outdoors, a good film, and a creative cocktail. You can follow Andrew on Twitter @AndrewMeggison



  • Marcus Vitruvius

    The “Drilling won’t instantly reduce oil prices,” refrain is also not new. I first remember hearing it during the Clinton administration, around 1996, or, about 16 years ago. Now we’re opposing action today because it won’t take effect (won’t take *full* effect, that is) until about 2030, or, about 18 years in the future.

    It’ll suck if, in 2030, we’re still opposing action because it won’t take effect until 2050.

    • T Adkins

      The media, the oil companies and the lobbyist seem to imply that if we drill today that the next day we will have more oil and cheaper prices. That it will take many years before we see any oil from any new drilling started today is very true. SO it is not that people are opposed to drilling they are oppose to the if we do this today then tomorrow or next week we will have everything for cheaper, that false-hood is what is opposed.

      I understand that drilling for oil is how we get oil but but we dont need to mislead the public. Any new oil drilled for today will not affect the price at the pump for the next 5 to 10 years if not longer.

      This type of dialogue has been going on since the oil crisis of the 70’s.

    • mental_patient

      It’s called the world market. When will you loons understand this.

  • http://MrEnergyCzar MrEnergyCzar

    They should tell the truth that cheap easy oil peaked in 2005 and they are replacing their oil reserves by buying natural gas reserves…

    MrEnergyCzar

  • Eletruk

    Yes, I’m sure the oil companies has everybodies best interest in mind when they ask for less regulation and less taxation. I’m sure they will happily pass the savings on to the customers.
    And if you believe that, I have a slightly used bridge for sale in New York.

  • sheckyvegas

    Eletruk – What kind of bridge?

  • Pingback: Subsidized Senators Reject Call to End Big Oil Tax Breaks()

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