Why Bill O’Reilly’s Gasoline Price Solution Doesn’t Work
Today’s column was supposed to be about what has happened with ethanol exports following the expiration of the ethanol tax credit. That is an interesting story (and exactly what I felt would happen once the credit expired), but it will have to wait until next week, because there is a story of much greater public interest. In fact, this current column was originally about President Obama and gasoline prices, but there is a peripheral issue of importance that I thought I would address first. I will get to the gas price discussion in a day or two.
I did two interviews on the subject of Obama and gas prices last week. One was with Brian Beutler at Talking Points Memo (TPM):
The second was with Alan Colmes from Fox News Radio. (A podcast of this is available at the link).
I will summarize the highlights from these interviews in the next column, elaborate on some points (like why I favor both expansion of renewable energy and the Keystone XL pipeline), and explain why President Obama is not to blame for current gasoline prices.
During my interview with Alan Colmes, he mentioned an idea that Bill O’Reilly has proposed, and that is to address gasoline prices by discouraging U.S. oil companies from exporting their products. Here is O’Reilly discussing the idea. Let’s dissect a few of his comments:
O’Reilly: We began covering the skyrocketing oil prices last Friday with Lou Dobbs. He was candid. Saying because of the mild winter, there is plenty of oil and gas in the U.S.A. So supply and demand here should dictate lower prices.
With all due respect, Bill O’Reilly has a fundamental misunderstanding about oil supplies. There is not “plenty of oil and gas in the U.S.A.” He is confused over net exports of oil and net exports of finished products as I will get into below.
O’Reilly: But of course, they are not lower. They are much higher because the oil companies are shipping their products overseas. Measured in dollars, so oil products are now America’s largest export worth $88 billion a year to the oil companies. A decade ago, oil exports were not even among the top 25 exports. Most of the oil stayed here. And with working Americans getting hammered by stagnant wages and huge unemployment, this is yet another punishing situation for the folks.
Exporting finished products is NOT why gasoline prices are high, as I explain below.
O’Reilly: However, if the Obama administration wanted to, it could ask Congress to raise export taxes on the oil companies to encourage them to sell their products here. Think about it. The oil companies are regulated by the federal government. They can’t drill on land nor in American waters without permission from the feds. Many Republicans want to drill baby drill but what’s the point if all the oil goes to China? Increased production obviously doesn’t mean lower prices for us.
Here is O’Reilly’s fundamental misunderstanding in a nutshell, and the reason his proposal would have zero impact on gas prices. He seems to believe that U.S. oil companies are drilling for oil, producing gasoline, and shipping that overseas. If you look at oil imports and exports, you will see that in fact our net imports of crude oil are still 9 million barrels per day – a number that has not changed much in the past few years. We have oil refiners like Valero — who don’t actually produce oil at all, importing oil from countries like Mexico and Brazil, refining it, and shipping gasoline back to them. Between just Mexico and Brazil (and there are others), we are importing 1.5 million barrels of oil per day, and sending them back about a million barrels a day of finished products. (Some of the oil we get from them does stay in the U.S. as finished products).
So how might O’Reilly’s proposal play out? It is easy enough to see what would happen. If you put a high export tariff on fuel and made it unattractive for U.S. oil companies to export their products, they simply would not import as much oil. So as gasoline demand continues to fall in the U.S., instead of continuing to import 9 million barrels per day and export 1 million barrels of finished products, we might only import 8 million barrels of oil per day and then export zero. It would not impact the balance of fuel supplies at all within the U.S., but it would lead to faster closures of U.S. refineries as their export markets dried up. So you would see the export problem “solved”, and the consequences would be no change in U.S. gasoline prices (Brazil and Mexico would then source their gasoline from someone else who benefitted from the refining jobs) and there would be further loss of refining jobs in the U.S.
Bill O’Reilly is doing a disservice to the American public by promoting a false belief: that the U.S. is awash in oil and that gasoline prices are high because we are shipping gasoline overseas instead of selling it domestically. The truth is that the U.S. does not produce nearly enough oil to meet our fuel demands, but we import a bit more than we need and export some of the excess as finished products, creating jobs and helping the balance of trade in the process. The reason we are doing this is that domestic demand for gasoline has fallen in recent years, and refiners can therefore either close more refineries or they can find other markets for their products.
2015 EIA Energy Conference
June 15-16, 2015 - Washington, D.C.
Platts North American Crude Oil Summit
February 26-27, 2015 - Houston, TX