Recently I’ve heard rightists making some remarkable claims regarding the impact that future American oil exploration/drilling will have on current prices. They are trying to convert Americans’ frustration with high gas prices today into support for long-term projects.
For example, I heard energy analyst/comedian Rush Limbaugh speculate if the United States merely announced that it was ramping up oil production, oil prices might immediately plummet $30/barrel.
Does such conjecture hold water? Commodity markets are very volatile, and I am very bad at predicting the future. But we need not look beyond this week’s news headlines for evidence that such claims are wrong.
Last weekend Saudi Arabia announced that it is immediately increasing production (from existing oil wells) by 200,000 barrels/day. Moreover, it claims that it can increase capacity by 2.5 million barrels/day in 2009. [Compare that to estimates that ANWAR offers no more than 1 million barrels/day].
How have the markets responded to this news of increased supply? Have the supposed speculators been crushed, sending oil futures in a downward spiral? Not yet. Last Friday oil closed at $134 and today oil closed at . . . $134.
So if the near-term promise of 2.5 million barrels of Saudi oil generates no significant movement in oil futures prices, why should we think that the promise of 1 million barrels of American oil (in eight years) will take a big chunk out of gas prices today? It won’t.