An AP "Fact Check" on the correlation of US energy production with gasoline prices takes us to the border of supply and demand before veering off into a comedy club:
FACT CHECK: More US drilling didn't drop gas price
WASHINGTON (AP) -- It's the political cure-all for high gas prices: Drill here, drill now. But more U.S. drilling has not changed how deeply the gas pump drills into your wallet, math and history show.
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.
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.
Oh, for heaven's sake - the question is, does additional US production result in lower prices than would have otherwise prevailed? If, just to seize an example, producers only ramp up US production in response to shortages and rising prices elsewhere, a simple statistical analysis such as done here will "prove" that more production is always associated with higher prices.
Well - Obama's energy plan calls for more investment in clean energy and increasing automobile fuel efficiency standards. So we eagerly await the next AP "Fact Check" where they analyze the correlation of rising CAFE standards and clean energy output with gasoline prices.
My guess - since we have a record level of solar and wind output yet gasoline prices are also at a record high, the statistical correlation will be clear - all this "clean energy" investment has increased gasoline prices.
And has the AP failed to notice that gasoline prices have been spiking since electric cars hit the streets and Obama announced stricter fuel economy standards? Surely the conclusion is inescapable - this push for fuel efficiency is driving gasoline prices through the roof.
JUST RUMINATING: I don't think OPEC has the pricing power it once did, if it ever had. But taking inspiration from the AP, I won't be letting facts interfere with a good story. Imagine (HYPOTHETICALLY!!!) that OPEC has sufficient market power and solidarity to control prices (and/or that Saudi Arabia, as a swing producer, can maintain OPEC discipline on aggregate output). In that world, if OPEC is determined to keep oil prices at a certain level, or rising along a certain path, they will simply cut their production to offset increased US production. The net impact of increased US production on global prices will be nil, although revenue will flow in different directions.
However! The same can be true on the demand side. If the US manages to cut its demand for oil by improving fuel efficiency or substituting clean energy, OPEC could simply reduce output to maintain prices.
Presumably, at some point if the US reduced its demand enough (or increased production enough) OPEC's pricing power would be undone. And the US certainly accounts for more gloabl demand than global supply, so that ought to be a sensible place to look.
However, the simple statistical analysis done by the AP is unlikely to illuminate these issues.