Soft pump prices show “drill baby drill” can wait
Hamper oil drilling and motorists will pay, industry groupies warn. But the drop in crude prices since BP’s Gulf of Mexico blowup suggests U.S. deepwater wells have a picayune impact on the market for oil. It’s a reminder that America relies on imports anyway and it won’t make any real difference to ban difficult drilling until oil firms prove it is safe.
The West Texas Intermediate crude price actually fell slightly in the days after President Barack Obama called a six month time-out on deepwater drilling. It even slid soon after the failure of BP’s top-kill method to stem the leak — an event which pushed a final resolution out towards August at the earliest and increased the risk of more lasting restrictions on drilling.
It’s true that the BP spill has coincided with a financial crisis in Europe which threatens to undercut energy demand. Even so, if U.S. drilling were as central to oil prices as congressional cheerleaders for Big Oil imply, events off the coast of Louisiana should have sent oil prices higher. The non-event, by contrast, should make Americans skeptical next time a lawmaker claims that curbs on the industry will lead to higher world prices for crude — and at the American pump.
In fact little the United States does in terms of oil supply has much effect at all on oil prices. Deepwater wells in the Gulf produce around 1.3 million barrels a day, against total global output of roughly 85 million.
A two-year moratorium on new drilling would only reduce potential output by 300,000 barrels a day in 2015, the International Energy Agency calculates — a piffling 0.4 percent of current world production. Oil titans in the Middle East could easily pick up the slack. Saudi Arabia alone has 4 million barrels a day of spare capacity, consultant PFC Energy reckons.
The fate of U.S. deepwater drilling does, of course, matter much more to the likes of BP and Exxon Mobil , which are shut out of many of the world’s biggest oil fields by government oil companies. But the U.S. government can afford to wait until oil majors show they know how to plug a deepwater well. Even America’s army of auto-crazy drivers won’t suffer.