Mike Luciano reacts to a recent Lowell Sun editorial on domestic oil production:
Tuesday’s Lowell Sun featured an editorial about how America can control and drive down the cost of oil and gasoline by producing more oil domestically. But like many Americans, the Sun’s editorial writer does not understand the nature of commodities markets, as indicated by this passage:
“While pushing more domestic oil into the U.S. market will offset huge price swings, it’s not enough to drive costs lower. For that, Obama should also relax offshore drilling regulations that have prevented oil companies from tapping into known reserves off the Gulf Coast and elsewhere.
“America has relied too long on foreign interests to solve its energy problems. That dependency must end. Obama would be wise to use our reserves and offshore deposits to control U.S. costs…”
Tapping America’s strategic reserves because a barrel of oil costs $105 is not prudent by any stretch of the imagination. There is only enough oil in the SPR to power the country for about a month and a half at current consumption levels. These reserves should be left alone in case of a real national emergency.
More than that, the writer seems to think that if only the US produced more oil, the price of oil in America would decrease; hence the suggestion to tap the SPR and approve more offshore drilling applications in an effort to increase supply and “control US costs.” But the price of crude oil—even crude pumped from American soil—is traded internationally on commodities exchanges such as the New York Mercantile Exchange. This means even the price of domestically produced oil is affected by what goes on in oil exporting countries around the world. For example, one American petroleum brand, West Texas Intermediate crude, was trading around $105 a barrel today. Now that’s American oil, and what’s going on in the Middle East is having zero effect on the supply of WTI, and yet the price for WTI has been rising along with Middle Eastern petroleum brands, North African brands, Brent Sea crude, and every other kind of crude oil in the world. And that’s because they trade closely with one another on global commodities exchanges. read more »