Editors note: The post has been changed to show that the views of John Kingston do not reflect those of Platts.
John Kingston, writing on “The Barrel” blog on Platts.com, believes the AP badly missed on its analysis of the relationship between U.S. oil production and gas prices.
Reporters Jack Gillum and Seth Borenstein argued that there was “no statistical correlation” between gas prices and the extent of drilling takes place in the U.S.
Kingston said he found this simplistic.
“Apparently the AP ‘investigation’ didn’t look at world supply and demand during the 35 years they studied, didn’t look at global spare capacity that could alleviate tight supplies, didn’t look at estimates of global inventories, and failed to note that prices are set on the margin, where increases in production matter. It didn’t really look at anything except those two lines.”
To buy into the findings, one would have to believe…
“…that in the current market, with relatively minor players such as South Sudan, Syria and Yemen adding up to a not-insignificant hit on the supply side, and the Brent market in backwardation reflecting that tightness, the extra 600,000 b/d or so of US output added since the beginning of 2009 could disappear right now, and there’d be no effect on the price that people are paying at the pump, because of this ‘tiny’ influence of the world’s third-largest producer.”
Kingston notes anecdotal evidence across the country where supply fluctuations appeared to have a very explicit impact on gas prices.
Through 2011, Denver retail prices were usually within a range of 10 cts either side of Houston prices. But this year, the glut in the Midcontinent has helped lead a significant change. Since early January, prices have been as much as 42-43 cts less than the Houston price.
And here’s how he closes his piece:
A radical concept: more oil leading to lower prices. Maybe somebody should alert the AP.