Leading the Drive for More Oil

Rich Tucker
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Posted: Aug 01, 2008 2:20 PM
Leading the Drive for More Oil

Halfway through the busy summer driving season, gas prices are finally starting to come down a bit. Still, it’s difficult to get excited about paying “only” $3.75 per gallon, when that’s double what prices were a few years ago.

So it’s almost a relief to get back to a steamy Washington, D.C., where politicians have been fiddling while leaving drivers without enough gas to burn.

The big debate in Congress this week was whether to allow more offshore oil exploration. That would seem like a no-brainer, but evidently a little Econ 101 is in order. The key reason gas prices are so high is because, well, there isn’t enough of it. If we increase the supply (by drilling for more) we’ll see prices come down.

Americans understand this. In a recent CNN poll, 69 percent of respondents supported allowing offshore drilling, while only 30 percent opposed it. A few weeks back, President Bush lifted a longtime executive order that banned most offshore drilling. But lawmakers need to act, too. And they didn’t, heading out of town for the August recess without agreeing to further drilling.

In fact, rather than drilling more, leading Democrats said they’d rather extend some existing tax breaks. Those include incentives for renewable energy, such as wind and solar power. “Why should we go forward on drilling if we can’t go forward on extenders?” Sen. Charles Schumer, D-N.Y., wondered. “That’s the most important thing we can do for energy right now.”

Is it, though?

According to official government statistics, only 7 percent of our energy comes from renewables, while 40 percent comes from oil. So even with the tax breaks, renewables aren’t making much difference. And, for the time being, we can’t run a car on wind or water power.

Our country does indeed need to move past the era of the internal combustion engine. But while we’re doing that, we also need to develop more sources of oil, to keep prices lower during the transition.

Schumer tried to go on the offensive again when Exxon Mobil announced its record profits. “We are shocked about how the oil companies are spending those profits. They tell us they want to do more domestic production. They tell us they need to drill offshore. They tell us that they can find oil on the mainland. And what do they do with their profits? They buy back their stock simply to increase their share price,” the New York senator said.

But the point is that oil companies cannot pour their profits into offshore exploration, because lawmakers have put about 85 percent of coastal areas off limits. Of course oil companies want to produce more of a product they can sell for $125 per barrel, but they’re not allowed to. So it only makes sense for Exxon to drive up its stock price when times are good, because the oil business has always been cyclical, and it doesn’t have anything else to do with all those profits, anyway.

More drilling isn’t a cure-all, and Americans understand that. In the same CNN poll, half of those surveyed said they didn’t think more drilling would bring prices down within a year. Yet they still favored more drilling. They understood that more oil would mean lower prices down the road. And more American oil would mean fewer petro-dollars going overseas to fund jihad against Americans.

Besides, simply the prospect that we might drill more should help lower prices.

This week, Democratic senators tried to pass an energy bill to eliminate “excessive speculation” in the petroleum futures market. But a key reason that speculators expect future prices to be high is that they doubt any new oil will be on the market. They’re driving the price up today expecting to make even bigger profits on a scarce resource tomorrow.

If Congress would allow drilling off shore and in the Alaskan wilderness, speculators would realize more oil was on its way, eventually. They’d start speculating on lower future prices, and that would bring down prices today.

It’s certainly true that our country can’t produce all the oil we need. But we can produce more, and bring down prices by doing so. Washington insiders don’t seem to get that. Maybe their constituents -- who do -- will remind them of it this month.