# Debunking American Petroleum Institute Claims About Oil Issues

Discussion in 'Science and Pseudoscience' started by Mick West, Apr 12, 2012.

A good piece on some of the more misleading claims of the US oil industry lobby, debunked with actual facts and research.

[EX=http://thinkprogress.org/climate/2012/03/28/453894/debunking-american-petroleum-institute-claims-about-oil-issues/?mobile=nc]CLAIM: “More domestic production is critical to putting downward pressure on gasoline prices — supply matters.” – Jack Gerard, American Petroleum Institute President and CEO, March 26, 2012
TRUTH: To test whether more U.S. domestic production would lower gasoline prices, the Associated Press just completed an exhaustive analysis of 36 years of monthly U.S. oil production and gasoline price data. AP found that there is:
“No statistical correlation between how much oil comes out of U.S. wells and the price at the pump. 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.” [/EX] It's one of those things where the people pushing the message take advantage of the fact that global economics is just a bit beyond the ken of the average person. It seems on the face of it quite reasonable that increasing supply will reduce prices. However oil is a global commodity, and US production is a small slice of that, and the proposed increases are an even smaller slice. So increases in domestic oil production have a negligible effect. I think that if peak oil is just around the corner, by far the more sensible thing for the US to do would be to keep our oil, so we have it later. Using up our reserves of oil at an increasing rate is incredibly short sighted. As a nation it would be far better to use up the rest of the world's oil, and save ours for later, when the need for domestic oil production will be a real necessity, not one driven by politics and short-sighted greed. 2. ### SR1419Senior Member I have thought the same thing for a long time...if, indeed, oil is a finite commodity, why not buy from others whilst we still can (even though it be relatively expensive), eventually as they run out or relations sour, we will still have some and it will be worth even more.... The idea that any politician can affect the long-term price of gas through any supply-side policy is just not an argument based in logic or fact. The folks at this blog are fairly gloomy- the Oil Doom its often called...but they do chew through various claims with substantial rigor: http://www.theoildrum.com/ 3. ### Mick WestAdministratorStaff Member 4. ### firepilotSenior Member But, thats the problem. Underground oil is not like in an underground tank, or not like in a bank account, that you can just pull out as much as you want or as fast as you want. There are physical factors that determine how much you can produce from it and the rate of production, such as natural pressure, permiability, porosity of the geologist formation, etc. Oil is not just in some pool, in a natural underground void, but that can be in a sandy strata, that is capped by limestone over the top. We could not touch our oil now, and then the issue is that we could never extract it fast enough to meet any needs at all. At current oil consumption needs, US domestic production could never meet that. Just because US reserves could theoretically supply the US for X number of years, well that is a mathematical comparison, but its not valid because you could never actually produce it all in that timeframe And if you yourself had subsurface mineral rights that allowed you to explore for oil, would you just want to sit on it for some unknown date in the future? And if you think that US production does not affect the worldwide price, do you think that the price would be unchanged if all domestic production was turned off tomorrow? 5. ### MikeCSenior Member I think the point about US production is that the suggested increases are insufficient to matter in terms of world supply and pricing - the oil market is a single one across the entire world - you cannot just look at the US supply in isolation. Eg if world demand is increasing faster than US supply can increase then prices will continue to rise regardless. 6. ### Mick WestAdministratorStaff Member Sure, but we should do that when there is an actual need, and not when there's oil available overseas that costs exactly the same. I'm not a country. If I sell my oil then I don't run out of oil any quicker. No, but the US produces 9% of the worlds. oil. If you increase that by about 10% to 10% then assuming perfectly elastic pricing then you get a 1% change in the price of oil. Basically nothing in the normal price swings. 7. ### Jay ReynoldsSenior Member Mick's good piece is from a biased outlet called thinkprogress.org. They are a propaganda outlet of the Democrat party and are in full campaign mode not to inform the pulic of the fantastic job their party's leadership has done but are out to paint scapegoats on two major portions of our economy, the oil/gas industry and the investment industry. Their latest bogeymen that thinkprogress is after: 1. Eliminating tax breaks for domestic oil/gas producers(which they falsely call "subsidies"), the same legitimate tax breaks that other industries enjoy. They hope to recoup$4 billion from this one.

The truth about those oil 'subsidies':

2. Increasing capital gains tax rates (which they call the "Buffet Rule"), named after billionaire Investor Warren Buffet, whose income comes from capital gains taxed at 15%, while his 'secretary', who has a salary of $400,000/yr. pays a 35% rate. They hope to recoup another$4 billion/yr. from this one.

Total tax increases of $8 billion by harmfully taxing tw major industries that employ millions, sounds like big money, doesn't it? The 2011 Federal budget was$3 trillion.
Do the math yourself. You can start by figuring how much is spent/day bydividing $3 trillion by 365 days/year. The problem that thinkprogress won't touch isn't that oil companies and investors need to pay more, the problem is our government has been spending more than their fair share of our money. The sooner we come to understand that we have let government grow far too large for far too long, and the sooner we can see the truth. This monster will soon devour all of us with its insatiabe appetite. Truth won't be found at thinkprogress, though. 8. ### Mick WestAdministratorStaff Member What about the basic point though? Will increasing domestic oil production noticeably reduce the price of gasoline? 9. ### firepilotSenior Member Well to a degree yes, and do a degree no. Groups like Media Matters, and the left in generate, are anti oil production and love to demonize it, and are just as guilty as oversimplying an issue as those who insist we will have cheap gas again if we only start drilling more. It is a worldwide commodity with increasing worldwide demand, but there can be regional and localized influences on the prices, which production can have an influence on. To think that production does not have an impact on the price is to ignore economics. It is a complex issue, with multiple factors at play. Oil from Cushing is selling at around a$20 discount per barrel because of more production sending oil there, faster than it is being withdrawn, resulting in a local/regional discount for gasoline compared to other places.

Sure, there's bunk everywhere. But I'm sure that MediaMatters is oversimplifying things in this instance:

[EX=http://mediamatters.org/research/201204120005]
FACT: Drilling Is Not A Solution To Gas Price Spikes

MYTH: Media Present U.S. Oil Production As A Solution To High Gas Prices.

• In recent months, all of the broadcast and cable news networks except NBC mentioned expanded domestic drilling as a factor that has or would lower gasoline prices. [Media Matters, 3/20/12]
• Fox News incessantly promotes drilling as a solution to gas price spikes. For instance, Fox contributor Dick Morris said that "the United States now has the capacity so to increase the global supply of oil that we can, in the future, completely control gas and oil prices" and that "the United States can affect this price and the answer is 'drill, baby drill.'" [Fox News, The O'Reilly Factor, 3/16/12, via Nexis]

Experts: Changes In U.S. Production Are Small Factor Given Scale Of Global Oil Market. At least 20 economists and energy experts from across the ideological spectrum have explained that increasing U.S. oil production will not prevent gas price spikes because oil is priced on a global market, which is influenced by much larger factors like growing demand from Asia and geopolitical conflicts. [Media Matters, 3/22/12]

Survey Of Economists Confirms That U.S. Policy Doesn't Dictate Gasoline Prices.
In a survey of economists by the Chicago Booth School of Business, not one disagreed with the statement that "Changes in U.S. gasoline prices over the past 10 years have predominantly been due to market factors rather than U.S. federal economic or energy policies." [Chicago Booth School of Business, 3/19/11]

Statistical Analysis Shows No Correlation Between Gasoline Prices And U.S. Oil Production.
An Associated Press analysis of 36 years of data "shows no statistical correlation between how much oil comes out of U.S. wells and the price at the pump," underscoring the fact that any impact on price from changes in U.S. oil production is swamped by the more dominant factors influencing the oil market. [Associated Press,3/21/12]
[/EX]

Note it's talking about gas prices, not oil prices. The claim that is being debunked is that increased oil production in the US can significantly reduce the price at the pump. Now this is an area that I'm not very familiar with, like most people, so it's easy to make simplistic assumptions. So I have to rely to a larger degree on the research done by others. So I try to read as much as possible on both sides.

But I find that all the actual research, like the AP report, is very strongly supportive of there being almost no correlation. On the "other side" (Fox News, Republicans, etc.) there's no research, no economists, just some broad populist claims with no scientific backing.
11. ### firepilotSenior Member

Well based on how inaccurate the media is on aviation matters, I do not trust them to get much right when it comes to Petroleum exploration. And do you think a group like Media Matters, did not probably have their conclusion before they ever started?

The price of gasoline has different factors involved, and one of those of course is the price of the oil. Price of oil has multiple variables, such as production, AND consumption.

Do you think that the discount in WTI at Cushing has nothing to do with US (And North American) production? And what about the lower regional gasoline prices there?

I find that partisans on both sides oversimplify it all. Lefties hate oil production and think we should just end it all. And then there are those on the right who just think we need to drill more wells, and then we are back to $1 gas, and will not have to worry about conserving. I have worked in the oil field as a scientist. And it is a complex issue, however we can not always confuse correlation and causation. When there is cheap gas, the price of oil has gone down to nothing, so domestic exploration falls off. Right now with more expensive gas because of more expensive oil due to worldwide consumption, that more expensive oil is an incentive for more domestic exploration. The boon in North Dakota would not be happening, if we had$25 barrel oil and 1.35 gas. So we do produce more oil when it is more expensive, but the more worldwide of a commodity it is, with the US share of consumption decreasing, the relationships is not as simple as it was

But make no mistake, just turning off US production would result in a substantial price increase

But here Media Matter is just relaying the research of others, specifically the Associated Press:

[EX=http://thinkprogress.org/climate/2012/03/28/453894/debunking-american-petroleum-institute-claims-about-oil-issues/?mobile=nc]CLAIM: “More domestic production is critical to putting downward pressure on gasoline prices — supply matters.” – Jack Gerard, American Petroleum Institute President and CEO, March 26, 2012
TRUTH: To test whether more U.S. domestic production would lower gasoline prices, the Associated Press just completed an exhaustive analysis of 36 years of monthly U.S. oil production and gasoline price data. AP found that there is:

That argument fails in both directions. The US consumes 355 million gallons of automobile gasoline a day. So to get that $4 billion back over a year, then companies would have to (simplistically) raise prices by just three cents per gallon. That's far less than normal weekly price fluctuations. 15. ### SR1419Senior Member If that's the case, then why does the West coast have the highest prices in the country and yet have the second most refining capacity in the country- second to the gulf coast? 16. ### Jay ReynoldsSenior Member I didn't say that refining capacity was necessarily detrminate of end product price, I said that domestic producing areas generally have lower prices. Yesterday I surveyed prices from Louisiana, Mississippi, and Arkansas. I was able to buy gasoline in all three states @$3.68.

From my understanding, the main reason why CA gas prices are among the highest is because the blend specified by the state EPA is much more expensive to produce.
I'm sure you have the clearest skies in the nation, tho.
Secondarily, Jerry Brown gets a larger cut than most state's governors. So, blame government for your specific woes!
17. ### scombridSenior Member

The cheapest gas is nearest the refining centers. Disparities in taxes between states and localities aside, gas gets more expensive the further you are from the refineries. But most of the oil being refined on US soil comes from elsewhere. Domestic production represents a small portion of the incoming unrefined product. Increasing domestic production will obviously increase the total supply by some fraction but the size of that fraction is pretty small. As it stands now, that is one reason the oil companies want Keystone to run to the Gulf of Mexico as opposed to terminating in OKC or some other mid-continent refining center. The finished product is meant to disperse onto the world market so the "downward" pressure on gas in generally resulting from increases in domestic production will very small at best.
18. ### Jay ReynoldsSenior Member

I doubt that is true. On what do you base this statement?

Not that exports are a bad thing, I wish we exported much more than we do now, our balance of trade is very poor.
19. ### MikeCSenior Member

I think there is perhaps confusion in the terms used here.

IMO insofar as the US market is unregulated it IS part of "the world market" - so the product does not have to be exported to be "disperse(d) onto the world market" - it just has to become available to a segment of that market, at the market price and forming part of the total market supply - ie if it were not supplied as it is then it would be supplied from somewhere else at the same price (as modified for transport, taxes, etc)