26 Aug 2008

Offshore and ANWR Drilling Would Lower Prices Immediately

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Notwithstanding certain politicians’ claims to the contrary, if the federal government gave the green light to development of ANWR and offshore oil deposits, prices would fall immediately. This is because producers with excess capacity in the present (basically, Saudi Arabia) would see the drop in future prices (because of the new barrels hitting the market in ten years), and that would make it more profitable for them to pump more in the present. I explain the mechanics of this more fully here.

President Bush lifted the executive side of the offshore drilling ban on Monday, July 14. Although it’s not airtight proof of the immediate effects of policy changes, even so it’s amazing that that day was virtually the all-time peak in oil prices; since then they have collapsed.

Imagine what would happen if Congress let its ban expire with the federal fiscal year (September 30)?!

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