Domestic Oil Production Is Irrelevant To Oil Prices

A blog about business and economics.
May 10 2012 10:42 AM

Domestic Oil Production Is Irrelevant To Oil Prices

1336660933006

Gasoline is made of oil, so it sounds to a lot of people like if the United States produced more oil domestically that gasoline would get a lot chaper. But a new CBO report on gasoline prices contains this nice chart which shows that it's not so. Canada is a net oil exporter, Japan produces no oil, and the United States is a middle case. But it's Canada, not the US, that's in the middle case for retail gasoline prices. Why?

The issue is that oil is a globally traded commodity, so oil isn't really any more expensive in importing countries than in exporting countries. International price differences are driven by the fact that some countries have high taxes on gasoline, some (like the U.S.) have low ones, and others have subsidies. Many oil-producing countries have adopted misguided consumption subsidy schemes so it's empirically true that high-production countries tend to have low prices, but this is a coincidence not a strict causal relationship.

Advertisement

What increased oil production does do is alter a country's trade situation. Canada imports a lot of consumer durable goods, so the more oil they export to the United States the more KitchenAid stand mixers they can afford to import from Ohio. This can be a big deal (Argentina, for example, really needs to bolster domestic energy production to raise foreign currency reserves) but it's a different issue and it's not one the United States is facing.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Students Aren’t Going to College Football Games as Much Anymore

And schools are getting worried.

Two Damn Good, Very Different Movies About Soldiers Returning From War

The XX Factor

Lifetime Didn’t Think the Steubenville Rape Case Was Dramatic Enough

So they added a little self-immolation.

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

Why a Sketch of Chelsea Manning Is Stirring Up Controversy

How Worried Should Poland, the Baltic States, and Georgia Be About a Russian Invasion?

  News & Politics
Weigel
Sept. 20 2014 11:13 AM -30-
  Business
Business Insider
Sept. 20 2014 6:30 AM The Man Making Bill Gates Richer
  Life
Quora
Sept. 20 2014 7:27 AM How Do Plants Grow Aboard the International Space Station?
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
  Arts
Brow Beat
Sept. 20 2014 3:21 PM “The More You Know (About Black People)” Uses Very Funny PSAs to Condemn Black Stereotypes
  Technology
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Bad Astronomy
Sept. 20 2014 7:00 AM The Shaggy Sun
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.