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  • Drilling Now Can Lower Oil Prices Today

    Current Harvard economics professor and former chief economic adviser to President Ronald Reagan Martin Feldstein explains in the Wall Street Journal how announcing that the U.S. will allow oil development on currently banned lands, could lower oil prices right now:

    The relationship between future and current oil prices implies that an expected change in the future price of oil will have an immediate impact on the current price of oil.

    Thus, when oil producers concluded that the demand for oil in China and some other countries will grow more rapidly in future years than they had previously expected, they inferred that the future price of oil would be higher than they had previously believed. They responded by reducing supply and raising the spot price enough to bring the expected price rise back to its initial rate.

    Hence, with no change in the current demand for oil, the expectation of a greater future demand and a higher future price caused the current price to rise. Similarly, credible reports about the future decline of oil production in Russia and in Mexico implied a higher future global price of oil – and that also required an increase in the current oil price to maintain the initial expected rate of increase in the price of oil.

    Once this relation is understood, it is easy to see how news stories, rumors and industry reports can cause substantial fluctuations in current prices – all without anything happening to current demand or supply.

    Now here is the good news. Any policy that causes the expected future oil price to fall can cause the current price to fall, or to rise less than it would otherwise do. In other words, it is possible to bring down today’s price of oil with policies that will have their physical impact on oil demand or supply only in the future.

    For example, increases in government subsidies to develop technology that will make future cars more efficient, or tighter standards that gradually improve the gas mileage of the stock of cars, would lower the future demand for oil and therefore the price of oil today.

    Similarly, increasing the expected future supply of oil would also reduce today’s price. That fall in the current price would induce an immediate rise in oil consumption that would be matched by an increase in supply from the OPEC producers and others with some current excess capacity or available inventories.

    Any steps that can be taken now to increase the future supply of oil, or reduce the future demand for oil in the U.S. or elsewhere, can therefore lead both to lower prices and increased consumption today.

    Posted in Energy [slideshow_deploy]

    19 Responses to Drilling Now Can Lower Oil Prices Today

    1. Editor, FedUpNetwork says:

      Conn,

      This article is just what we need. Unfortunately, the news media is only giving Democrat talking points, seemingly in hopes of getting Democrats elected this fall.

      Ironically (or maybe not) Republicans are the only ones coming up with positive solutions for this energy crisis. Will the public see it before the country sings "Hail to Obama"?

    2. Stephen B, Belding,M says:

      The liberals are all about saving species other than people. That's why they have prevented us from becoming energy independant. With nuclear power, gas exploration and drilling here we would then be able to afford to come up with new technology for alternate energies.

    3. Maya, Los Angeles, C says:

      In response to the two previous comments:

      Are you kidding? Republicans are the ones responsible for this energy crisis, so one can hardly give them credit for calling the fire department after they've set fire to the building. Have we forgotten about Carter's energy conservation policies that were systematically taken down by Reagan and Bush Sr.? Give yourself a refresher please:

      http://www.pbs.org/wgbh/amex/carter/filmmore/ps_e

      You can choose to believe what Republicans are saying regarding conservation and alternate energy technologies NOW during election time when gas prices are soaring, or you can save your praises for when they actually do something about it. But given their history, I wouldn't hold my breath.

      And while you're recalling Reagan's wastefulness, also remember what you learned in Ecology class — virtually all species are important to an ecosystem.

    4. crude says:

      That article by Martin Fieldstein is accurate if one has a magic wand, that can construct the thousand mile pipeline, install the oil rigs in the blink of an eye.

    5. Paul, new orleans says:

      All you need to know is that this article is taken VERY out of context…listen to this… http://www.npr.org/templates/story/story.php?stor

    6. Ismael, Tennessee says:

      American oil policy is just idiotic IMHO. Drilling from ANWR would not wipe out any species. All industries are following OSHA(Occupational Health and Safety Stds and EHS (Environmental and Health Safety), any spill would clearly be handled in the proper manner. It is more environmentally dangerous to ship oil in large barges than drilling.

      Politicians like Democrats make such demagoguery by telling us we will gain by increasing taxes to Oil Companies when in fact, it will just be passed on to consumers. They are also against drilling these potentially abundant resource in ANWR.

      The bottom line. We should drill and make sure we harvest these resources while looking for other energy alternatives.

      Carbon dioxide is not greenhouse gas, it is necessary for Plant life and in turn plants and trees gives us oxygen (known as Carbon cycle in elementary science which most people are ignorant about). Cutting carbon dioxide in the guise controlling climate change is just to get money from people. Why are they not pushing for TREE PLANTING / reforestation instead since plant consume carbon dioxide?

    7. Bill , West Virginia says:

      Just the release of information that drilling will commence will drop the global oil price immediately, due to speculators seeing future oil supplies increasing.

      I would never advocate that government control private companies.

      However, that being said, if the government is going to give the oil companies permission to drill in Anwar and of our coasts. There needs to be a caveat to that permission.

      One, that each oil company commit to the immediate construction of the number of refineries according to their percentage of oil produced.

      And,two, that 80% of that refined product be sold in the United States and not released to the global market.

      They can still make their profit and the supply here would be guaranteed.

      At the same time Congress must set aside A R&D fund for the immediate development of Alternative Fuels, with a date for completion.

      If the oil companies do not agree than they will not get access to billions of barrels of oil, with which they can profit.

    8. Pingback: Why Drilling Can Lower Oil Prices Today · The American Pundit

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    11. Leo, Los Angeles says:

      This proposal for more drilling is a bogeyman. Oil is not like your ordinary commodity. It's like any other essential like water and electricity. The price of it does not and will not go down just because of an increase in supply. Whatever price the oil companies and traders dictate, we will have to pay it because we need it. This is called "inelastic" pricing in economics. The oil that the companies will extract here will not be sold at lower prices than in the world markets. Just look at what they are doing now. Is Alaska and Texas crude cheaper than Saudi or Canadian crude? The new proposal is just a smokescreen to diffuse attention away from what this administration and the oil companies are doing – raping the world economy shamelessly while they can until there is a change in administration that may get in their way. Wake up people. Republicans are pulling out the same tricks that they have pulled in each and every election in recent history. Remember, the saying, "fool me once…..". You know the rest.

    12. Howard says:

      America's infrastructure is based on oil. All the trucks, planes, trains, ships, that deliver all goods to market run on oil. All automobiles, as well as all the gas stations across America run on oil. All petroleum based products, run on oil. Although alternative fuels most definitely should be developed, in the mean time America must have oil to keep our economy from screeching to a halt. In addition, our national security requires energy independence ASAP, so that we are not transferring all our wealth to foreign countries who do not like us, and who can cripple us by turning off the spigot, disrupting oil transport to us, or arbitrary oil price hikes. These are all reasons why we must be drilling for more oil right now and right here in the U.S.A. … ASAP. Nancy Pelosi and her cronies stubborn commitment to petty party politics, instead of realistic concern over our national interest, even in the face of 76% of Americans who want off shore drilling now, will end up in bringing America to its knees.

    13. m stokes-Tulsa OK says:

      Drill the oil where ever it is. Yes protect the earth but drill. More oil means jobs, cheap gas we can afford, more tax money you free givers can hand out. Set limits on big oil greed and wallstreet. If I have to pay high price for gas, it better be American. No more liberal do gooders. Drill American, keep money in America. When you drill american oil, OPEC will drop price fast. PS– I do understand the big picture.

    14. Pingback: Obama Flips on Domestic Drilling | The American Pundit

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    16. Pingback: McCain would be the perfect president. - Page 2 - US Message Board

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    18. dave las vegas says:

      If drilling today will lower oil prices…OPEC will cut production to raise the price back up.

    19. Pingback: Morning Bell: Drilling to Save the Economy | The Foundry: Conservative Policy News.

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