Another day, another bit of living proof Republicans don’t have a clue how world oil markets work…or if they do they don’t care, and they are perfectly pleased to do the bidding of multi-national oil corporations. Witness their shiny new bill: Lowering Gasoline Prices to Fuel an America That Works Act, or H.R. 4899, for which Rep. Mark Amodei (R-NV2) and Rep. Joe Heck (R-NV3) were pleased to vote, but which didn’t fool Rep. Steven Horsford (D-NV4) or Rep. Dina Titus (D-NV1). [rollcall 368]
The bill is a Christmas Wish List from the Oil Barons to the U.S. Congress, it’s Drill Baby Drill, and Shale Smacking Goodness — for the oil barons.
The bill’s authors assume the American public has a density equivalent to the API standard for heavy crude, i.e. an API gravity of less than 20°.
We’d have to be that dense in order to believe that more offshore drilling is going to have a perceptible impact on gasoline prices. To demonstrate that we have an API gravity of at least light sweet crude, (37° to 42°) let’s review.
What factors determine oil prices? There’s a picture for that —
There’s a supply side and a demand side, which in our good old capitalist system creates the prices. On the supply side, crude oil comes from both OPEC and non-OPEC countries. The demand side is determined by consumption from countries that either are, or aren’t, members of the Organization of Economic Cooperation and Development, aka OECD. [EIA] The blithe assumption on offer is that if the U.S. drills for more crude oil, and puts more crude oil on the market, the lower the price will be at the pump. Not. So. Fast.
All those arrows point, not to your local refinery — much less your most convenient filling station — they point to the Spot Price. The price of oil also depends on the demand for it, and there are two more charts to illustrate who’s demanding what. First, let’s look at the non-OECD countries, like China, India, and Saudi Arabia:
Without getting into too much gory detail, the blue columns represent demand from countries like China, India, and Saudi Arabia. The price and consumption trends tend to follow one another. Now, let’s take a look at the other graph — the one illustrating the OECD countries, the United States and most of Europe.
What do we learn from this illustration? The EIA explains:
“The Organization of Economic Cooperation and Development (OECD) consists of the United States, much of Europe, and other advanced countries. At 53 percent of world oil consumption in 2010, these large economies consume more oil than the non-OECD countries, but have much lower oil consumption growth. Oil consumption in the OECD countries actually declined in the decade between 2000 and 2010, whereas non-OECD consumption rose 40 percent during the same period.”
Consumption is higher in developed countries — that’s just about obvious with our higher rate of vehicle ownership — but we have a lower rate of oil consumption growth. While oil consumption rates were going down in the U.S. and Europe, non-OECD consumption rates were going up, up by 40% as the EIA reports. Notice that the price and the consumption lines don’t track for OECD countries — that would be us — as they do for the non-OECD countries — that would be China, India, and Saudi Arabia.
Now, let’s return to that spot price.
“The spot price is the current market price at which an asset is bought or sold for immediate payment and delivery. It is differentiated from the forward price or the futures price, which are prices at which an asset can be bought or sold for delivery in the future.” [InvestAns]
The spot price is set in the ‘markets,’ i.e. the commodities market. For today’s prices Bloomberg News “Energy” page provides what the w-o-r-l-d price is for crude oil and refinery products. Now we can approach the obvious question — who benefits from increased offshore drilling in U.S. waters?
A quick look at the two charts above should provide a major clue — it would be the areas with the highest consumption growth rate, i.e. the non-OECD countries — China, India, Saudi Arabia, etc. Since oil is sold on the w-o-r-l-d market it will most likely go where there is the most demand.
Thus, what Representatives Heck and Amodei are supporting is the increase in offshore oil leases for multi-national oil corporations to sell the oil on the world market, in which it will probably go to those countries (non-OECD) like China, India, Brazil, etc. in which the consumption growth rate is higher.
To add insult to the injuries, the oil companies aren’t developing the leases they currently hold
“As of May 2012, nearly 72 percent of the area on the Outer Continental Shelf (OCS) that companies have leased for oil and gas development – totaling 26 million acres – are not producing or not subject to pending or approved exploration or development plans. ” [Dept Interior, May 2012 pdf] [TP]
One might quibble with how the Department of the Interior categorized lands undergoing seismic and geophysical testing as not “active,” but the fact remains — about 2/3rds of the current leases aren’t producing. The quibblers do make a legitimate point, not all leases will yield production. Yet the thrust of the latest Republican incarnation of Drill Baby Drill, as evidenced by the title of the bill itself, it that somehow more leases will automatically mean lower prices at the pump. Once more, glance back to the OECD chart and notice that the consumption and the price lines don’t match.
In the immortal words of oil-man President George W. Bush: “I know it’s in Texas, probably in Tennessee that says, ‘Fool me once, shame on … shame on you. Fool me… You can’t get fooled again!‘” [Time]