FACT CHECK: More U.S. oil drilling hasn't dropped gas prices

Wednesday, March 21, 2012 | 6:44 p.m. CDT; updated 7:23 p.m. CDT, Wednesday, March 21, 2012
A motorist pumps gas at a Mount Lebanon, Pa., mini-mart. A statistical analysis by The Associated Press of 36 years of monthly inflation-adjusted gasoline prices and U.S. domestic oil production shows no statistical correlation between how much oil comes out of U.S. wells and the price at the pump.

WASHINGTON — It's the political cure-all for high gas prices: Drill here, drill now. But math and history show that more U.S. drilling has not changed how deeply the gas pump drills into your wallet.

A statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and U.S. domestic oil production by The Associated Press shows no statistical correlation between how much oil comes out of U.S. wells and the price at the pump.

If more domestic oil drilling worked as politicians say, you'd now be paying about $2 a gallon for gasoline. Instead, you're paying the highest prices ever for March.

Political rhetoric about the blame over gas prices and the power to change them — whether Republican claims now or Democrats' charges four years ago — is not supported by cold, hard figures. And that's especially true about oil drilling in the U.S. More oil production in the U.S. does not mean consistently lower prices at the pump.

Sometimes prices increase as American drilling ramps up. That's what has happened in the past three years. Since February 2009, U.S. oil production has increased 15 percent when seasonally adjusted. Prices in those three years went from $2.07 per gallon to $3.58. It was a case of drilling more and paying much more.

U.S. oil production is back to the same level it was in March 2003, when gas cost $2.10 per gallon when adjusted for inflation. But that's not what prices are now.

That's because oil is a global commodity and U.S. production has only a tiny influence on supply. Factors far beyond the control of a nation or a president dictate the price of gasoline.

When you put the inflation-adjusted price of gas on the same chart as U.S. oil production since 1976, the numbers sometimes go in the same direction, sometimes in opposite directions. If drilling for more oil meant lower prices, the lines on the chart would consistently go in opposite directions. A basic statistical measure of correlation found no link between the two, and outside statistical experts confirmed those calculations.

"Drill, baby, drill has nothing to do with it," said Judith Dwarkin, chief energy economist at ITG Investment Research. Two other energy economists said the same thing and experts in the field have been making that observation for decades.

The statistics directly contradict the title of GOP presidential candidate Newt Gingrich's 2008 book "Drill Here, Drill Now, Pay Less," as well as the campaign-trail claims from the GOP presidential candidates.

Earlier this month, GOP front-runner Mitt Romney said of his solution to higher gas prices: "I can cut through the baloney ... and just tell him, 'Mr. President, open up drilling in the Gulf, open up drilling in ANWR (the Arctic National Wildlife Refuge). Open up drilling in continental shelf, drill in North Dakota, drill in Oklahoma and Texas.'"

On Wednesday, with President Barack Obama traveling to oil and gas production fields on federal lands, Crossroads GPS, a nonprofit arm of a super PAC supporting GOP candidates, released a new ad to air in the same states that Obama was visiting. It accused Obama of restricting oil development in America and concludes "bad energy policies mean energy prices we can't afford."

The late 1980s and 1990s show exactly how domestic drilling is not related to gas prices.

Seasonally adjusted U.S. oil production dropped steadily from February 1986 until three years ago. But starting in March 1986, inflation-adjusted gas prices fell below the $2-a-gallon mark and stayed there for most of the rest of the 1980s and 1990s. Production between 1986 and 1999 dropped by nearly one-third. If the drill-now theory were correct, prices should have soared. Instead they went down by nearly a dollar.

The AP analysis used Energy Department figures for regular unleaded gas prices adjusted for inflation to 2012 dollars, oil production and oil demand. The figures go back to January 1976, the earliest the Energy Department keeps figures on unleaded gas prices. Phil Hanser, an economist and statistician at the energy consulting firm The Brattle Group; University of South Carolina statistics professor John Grego; New York University statistics professor Edward Melnick and David Peterson, a retired Duke University statistics professor, looked at the analysis, ran their own calculations, including several complicated formulas, and came to the same conclusion.

When U.S. production goes up, the price of gas "is certainly not going down," Melnick said. "The data does not suggest that whatsoever."

The calculations "help make the point that U.S. production and demand have little to do with the price of gasoline in the U.S., and lend support to the notion that there is not a great deal we in the U.S., acting alone, can do to affect the price of gasoline," Peterson wrote in an email.

He pointed out that Energy Department figures show that gas prices in the U.S. seem to rise and fall similarly to gas prices in Europe, showing that it has little to do with American drilling.

And that's the key. It's a world market, economists say.

Unlike natural gas or electricity, the United States alone does not have the power to change the supply-and-demand equation in the world oil market, said Christopher Knittel, a professor of energy economics at MIT. American oil production is about 11 percent of the world's output, so even if the U.S. were to increase its oil production by 50 percent — that is more than drilling in the Arctic, increased public-lands and offshore drilling, and the Canadian pipeline would provide — it would at most cut gas prices by 10 percent.

"There are not many markets where the United States can't impose its will on market outcomes," Knittel said. "This is one we can't, and it's hard for the average American to understand that and it's easy for politicians to feed off that."

If drilling activity rises around the globe for a sustained period of time, gasoline prices can fall as that new supply eventually finds its way to market, but the U.S. can't do it alone, oil analysts say.

Politicians — especially those in the party that's not occupying the White House — have long harped on high gas prices when expedient. Then-Sen. Obama said in 2008, when he was running for president, that "here in Ohio, you're paying nearly $3.70 a gallon for gas, 2 1/2 times what it cost when George Bush took office."

But Obama, who has seen gas prices go up 73 percent since he took office, was singing a different tune last week in his weekly radio address: "The truth is: The price of gas depends on a lot of factors that are often beyond our control. Unrest in the Middle East can tighten global oil supply. Growing nations like China or India adding cars to the road increases demand. But one thing we should control is fraud and manipulation that can cause prices to spike even further."

The political party of the president doesn't seem to matter to the price at the pump either. Since 1976, the average monthly gas price, adjusted for inflation, during Democratic presidencies has been $2.25; under Republicans it's been $2.34. Obama had the steepest monthly average at $3.05 and Bill Clinton the cheapest at $1.68.

When Bush and running mate Dick Cheney campaigned in 2000, they argued that as oil executives they could get oil prices down, with Bush saying, "I would work with our friends in OPEC to convince them to open up the spigot, to increase the supply."

Yet it was during the last few months of Bush's term in 2008 that gas prices hit their highest: $4.27 when adjusted for inflation.

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Mark Foecking March 22, 2012 | 8:05 a.m.

A long-overdue article. Gas prices are high because worldwide demand is high and world supply is at a point where political events could trigger shortages, Whether we drill ANWR and offshore or not will make little difference to world oil prices no matter who is in the White House.

We haven't been the world's swing producer in 40 years, and we'd better start getting used to that.


(Report Comment)
frank christian March 22, 2012 | 9:39 a.m.

This is another liberal "we can't get there from here" piece, designed to remove the heat B. Obama is rightly receiving in time for his re-election, probably released to every paper in the country for yesterday.

American Presidents, J. Carter, created expensive gas with his phoney "energy crisis" and R. Reagan (campaign promise to reduce pump prices), did so soon after inauguration by rescinding ONE Carter regulation.

"it was during the last few months of Bush's term in 2008 that gas prices hit their highest: $4.27 when adjusted for inflation." On July 14th, after this price began to erode our economy, GW Bush rescinded the drilling moratorium imposed by his father while President and begged Congress to cooperate. Possibly only "speculators" noticed, but, somehow, by the time of Obama inauguration price was down to $1.84 per gallon of gas.

"We haven't been the world's swing producer in 40 years, and we'd better start getting used to that." Statements such as this should include the efforts by liberal D's in our government in last 40 years to reduce our economic standing with the rest of the world.

Anyone truly wishing to relate reasons for high gas pump prices, Imo would discuss these facts as I have related them, not IGNORE them.

(Report Comment)
Mark Foecking March 22, 2012 | 10:12 a.m.

Frank wrote:

"American Presidents, J. Carter, created expensive gas with his phoney "energy crisis" and R. Reagan (campaign promise to reduce pump prices), did so soon after inauguration by rescinding ONE Carter regulation."

Reagan's rescinding oil import quotas was probably the single most long term destructive action of his presidency. He set the stage for our crippling import dependency. Had we invested the trillions of dollars that we've sent overseas to buy oil in domestic industry and infrastructure, we would be far less worried about the world price of oil. We would be living within our domestic production, and using alternatives much more than we are now.

Reagan's action was a classic case of shortsightedly putting difficult problems off to the future. It is a pattern increasingly followed by politicians today regardless of party.

"Anyone truly wishing to relate reasons for high gas pump prices, Imo would discuss these facts as I have related them, not IGNORE them."

Our domestic production is now higher than at any time during Bush's second term. The price of gasoline is not influenced significantly by partisan politics, and it's all laid out factually in the article above. Whether you agree with it, Frank, has nothing to do with its truth.

Americans do not have some birthright to cheap gasoline. Don't like it? Don't buy it.


(Report Comment)
frank christian March 22, 2012 | 2:19 p.m.

"Reagan's rescinding oil import quotas" was a matter of stepping up Carters already in force plan for reductions and elimination of the steps that had caused the creation of OPEC. Democrat controlled "Congress finally allowed oil price controls to expire, but decided to place a windfall profits tax on companies in 1980. The tax was not really a tax on profits, but an excise tax on domestic oil production and thus made domestic production less attractive, while encouraging imports. One congressional study found that the tax reduced domestic oil production by 3-6 percent and increased U.S. imports by 8-16 percent. The windfall profits tax was repealed in 1988. And the period since 1990 has been generally free of petroleum market regulation." The windfall profits tax repeal was at the behest of Reagan. CATO Institute.

"Americans do not have some birthright to cheap gasoline." Mark here, sounds like the Federal judge while breaking up AT&T, when it was done, "Americans are not entitled to a telephone for the price of a pizza!" I recently paid $12. for an AT&T "pay as you go" cell phone. Don't buy pizzas any longer how much do they now cost?

(Report Comment)

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