Why All Of America's New Crude Oil Still Won't Lower Gas Prices


Photo: Youtube

America’s booming crude production industry has done amazing things for the economy.It’s created jobs.

It’s balanced budgets.

Some argue it’s even gotten presidents elected.

But all that production is never really going to lower Americans’ gas prices — which recently screamed higher — because we are competing with the entire world for the oil that it comes from.

In recent years, American gasoline has been priced to Brent,  the international benchmark for oil.  That’s in part because because we’ve produced so much crude that the old benchmark, West Texas Intermediate, has de-coupled from Brent and now trades at a severe discount — we’ve discussed this elsewhere.

But the main reason why our oil is now priced to Brent is that a lot of other folks around the world are now demanding it.  And while we’ve explained why many peak oil theories are misguided, oil is nevertheless a finite resource that’s going to be dictated by basic economics.

“Once [oil] is able to make its way to coast, it goes to highest bidder,” AAA’s Avery Ash told us. “That’s simply a byproduct of a free market. It holds true for oil, wholesale gasoline, any number of products.”

One more point: in order for gas prices to go down, we’d have to lower our consumption of crude to reduce prices. 

Here’s a table showing domestic crude production and total consumption. The former is less than half the latter:  

eia crude map

Photo: EIA

As a result, America will continue to import much of its oil, and therefore be subject to Brent crude price movements.

“For the foreseeable future, [Brent] will still be the price,” the EIA’s James Preciado told us.

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