‘Drill, Baby, Drill’ Fails: Why Gasoline Prices Remain High Despite Oil Boom

[one...two...tree 2,762]

On Monday, USA Today reported that the price of gasoline hit $3.60 a gallon for the first time since October — an early start in comparison to the usual price rise seen in the spring. The increase occurred despite world oil production climbing to 88.8 million barrels per day in 2012, about 2 million barrels higher than two years ago accordingto the Washington Post's Brad Plumer. And about half of that increased production is due to an oil boom in the United States that's driven imported oil to its lowest level since 1987.

That increased oil production will bring down gas prices is one of the most reliable Republicancanards when it comes to energy, so what gives?

As Plumer points out, "The big thing to remember is that oil prices are a function of both supply and demand. If world demand for oil rises faster than producers can pump the stuff out, prices will go up." Plumer cites a piece by James Hamilton of UC San Diego, which shows China's consumption of oil is booming, and that the world economy as a whole is growing apace — and thus demanding more oil — even as fuel efficiency increases.

Technically, the world isn't even producing enough oil to keep pace with the rise in global incomes. Oil supply has risen by 2.3 percent since 2010. But the world economy has grown by 7.1 percent since then. The only reason that oil prices haven't soared to record highs, Hamilton points out, is that countries have been undertaking new conservation measures.

Americans, for instance, are buying more fuel-efficient cars in droves.

Granted, oil prices would almost certainly be even higher than they are now without the drilling boom over the past two years in places like North Dakota. But at this point, the extra drilling is struggling to keep up with the pace of global economic growth.

Here are the global production and consumption numbers for the last few years from the U.S. Energy Information Agency (note the numbers to the left start at 84,000 thousand barrels per day):

And despite forecasts from BP and the International Energy Agency that domestic and global oil production will continue rising, Plumer notes that high gas prices aren't going away anytime soon:

The [iEA] recently projected that U.S. oil production would continue rising through 2020 and beyond, as companies extract more "unconventional" oil from shale rock and other sources.

But global demand was also expected to rise 35 percent between now and 2035, with China on pace to become the largest oil consumer in the world in the next two decades.

And that's the optimistic scenario. Raymond T. Pierrehumbert, a geophysical sciences professor at the University of Chicago and a lead author on the third IPCC Assessment Report, recently pointed out in Slate that while going after unconventional oil remains profitable, and thus likely to continue, it requires ever greater effort to retrieve the same amounts of oil:

Technological developments have made it possible to tap into tight oil, but these are not the same kinds of technological developments that have given us ever more powerful computers and cellphones at ever declining prices.

Oil production technology is giving us ever more expensive oil with ever diminishing returns for the ever increasing effort that needs to be invested.

According to the statistics presented by J. David Hughes at the [American Geophysical Union] session, we are now drilling 25,000 wells per year just to bring production back to the levels of the year 2000, when we were drilling only 5,000 wells per year.

We have to keep increasing drilling just to keep production steady, and the faster you drill in a particular area the faster production peaks and drops off. That future is an economy pouring ever greater amounts of energy and money into efforts "to extract the last drop of profit through faster depletion of a resource that's guaranteed to run out." So the structural economics of continuing to pursue oil are shaky, even if further industry profit is possible.

It remains the case that the best way to avoid high gas prices and supply shocks — not to mention avoiding catastrophic damage to the global climate — is to move away from oil as an energy source.

http://thinkprogress...boom/?mobile=nc

[I AM NOT THAT GUY 5,715]

Are we still blaming Bush for Obama's failures?

[himher 634]

Maybe if we can permit some REFINING CAPACITY then we will have higher production of GASOLINE

We can produce a billion barrels a day of oil but without refining capacity expansion we still make the same amount of gasoline

BUT WAIT: Liberals dont make anything. We didnt expect you to know that

http://www.hpj.com/archives/2012/mar12/mar12/0306AgvisorsMRsr.cfm

[Obama 2012 1,714]

Oh look, Steven posting IGNORANT bullshit as usual.

It's the refining stupid!

[spookyturtle 9,465]

I'm sure if there were more refineries the price would drop. Not. It would probably go up to pay for the refineries. The consumer is screwed either way.

[I AM NOT THAT GUY 5,715]

I'm sure if there were more refineries the price would drop. Not. It would probably go up to pay for the refineries. The consumer is screwed either way.

The Saudis offered to build the refineries for us - at no cost. We said no, so now they are building them in China. Way to go NIMBY's! Anything the US doesn't want from our friends and neighbors, China will gladly take.

[himher 634]

We need to shut off the spigots to the dependent states like california. Then our prices will go down.

I'm sure if there were more refineries the price would drop. Not. It would probably go up to pay for the refineries. The consumer is screwed either way.

[one...two...tree 2,762]

We need to shut off the spigots to the dependent states like california. Then our prices will go down.

Worldwide demand is outpacing production. What part of that fact don't you understand besides it not fitting your RWN alternate reality?

[spookyturtle 9,465]

Worldwide demand is outpacing production. What part of that fact don't you understand besides it not fitting your RWN alternate reality?

Why let facts ** up a good alternate reality?

[^_^ 5,021]

So when worldwide demand is increasing so much, what is the excuse to cut back on supply?

[spookyturtle 9,465]

[quote name=' timestamp='1360818403' post='5979021]

So when worldwide demand is increasing so much, what is the excuse to cut back on supply?

Cutting back keeps the prices high.

[OnMyWayID 1,489]

Your own post says it: It would be even worse if they did not get aggressive about drilling. Another misleading title.

You know what will make people become more efficient? High prices.. Sit back and relax, prices will spike as demand rises and people will move to what is in their personal best interest. Sorry it is not happening on your time table but hey be happy that is what is going to happen - No doubt you will find blog posts to copy and paste blaming it all on whoever you don;t like at that time.

[himher 634]

Sure why? I worked in oil and gas in Alaska and in Saudi and in Louisiana/Alabama/Texas. After 22 years of doing that I'm sure you guys know more about crude pricing and refining margins than I do.

You're dam skippy right about one thing. You and your e-buddy and I probably do have alternate realities on this issue. Mine: comes from doing the work. Yours: comes from talking about and reading about doing the work.

http://www.businessweek.com/articles/2012-02-23/angry-about-high-gas-prices-blame-shuttered-oil-refineries

Another cool idea: Lets mandate ethanol and biodiesel so that corn and soy prices will go up too. Everyone will be better off and cut back on those things and it will make them cheaper in the long run

http://www.cnn.com/2012/08/20/opinion/mcdonald-corn-ethanol

Why let facts ** up a good alternate reality?

[spookyturtle 9,465]

Sure why? I worked in oil and gas in Alaska and in Saudi and in Louisiana/Alabama/Texas. After 22 years of doing that I'm sure you guys know more about crude pricing and refining margins than I do.

You're dam skippy right about one thing. You and your e-buddy and I probably do have alternate realities on this issue. Mine: comes from doing the work. Yours: comes from talking about and reading about doing the work.

http://www.businessweek.com/articles/2012-02-23/angry-about-high-gas-prices-blame-shuttered-oil-refineries

Another cool idea: Lets mandate ethanol and biodiesel so that corn and soy prices will go up too. Everyone will be better off and cut back on those things and it will make them cheaper in the long run

http://www.cnn.com/2012/08/20/opinion/mcdonald-corn-ethanol

Sorry, I didn't realize you were in high level management in the oil industry and an expert in the field. Your posting sounds more like a blue collar type of guy.

[I AM NOT THAT GUY 5,715]

Sorry, I didn't realize you were in high level management in the oil industry and an expert in the field. Your posting sounds more like a blue collar type of guy.

Or, maybe he just can't keep a job. He was working on power plants just the other day. I wonder what profession could work in so many fields that doesn't involve pushing a broom, or wearing an apron.