America’s oil boom is worth celebrating, but we won’t see $2-a-gallon gas prices any time soon.
After a harsh winter, it’s time to get out and hit the open road. So what’s with $4-a-gallon gasoline? North American oil production is on the rise, so you might have expected a break at the pump by now. Yet gas prices remain stubbornly high.
What happened to the homegrown energy boom? Wasn’t North Dakota supposed to be America’s Saudi Arabia? How come gas isn’t back to $2 a gallon?
The boom is real, and North Dakota, along with states and Canadian provinces, is producing a gusher of oil. The North American energy bonanza now underway is helping the U.S. economy to pull out of the doldrums. But gasoline, alas, is not going to be half price anytime soon, if ever. America’s oil boom is delivering broad benefits, but not necessarily at the pump.
The good news is that oil analysts say gas prices probably peaked for this year in late April. Based on today’s market conditions, prices should decline by a nickel or a dime over the next month. The U.S. Energy Information Administration expects a gallon of regular unleaded to sell for an average of $3.48 nationwide in 2014 and $3.39 in 2015. That’s a steady, significant decline from $3.63 in 2012 and $3.51 in 2013.
But the impact at the pump is limited because oil is an internationally traded commodity. By virtue of its soaring production, North America is more insulated from price shocks prompted by disruptive events in the Middle East and other oil-producing regions than it has been in years. The U.S. shale boom is replacing oil being kept off the market because of geopolitical issues in Ukraine, Iran and elsewhere.
But the U.S. can’t insulate itself entirely from global energy markets.
Market forces impose important discipline. Responding to signals of supply and demand ensure that capital is invested wisely. A free market, including free trade, allocates resources better than any other system. Over time, free markets are most efficient. Consumers benefit.
Even as America pursues free-trade deals in Europe and Asia, its energy policy is built on a glaring inconsistency. Federal law allows the export of gasoline, diesel and other refined products, but not crude oil. That ban began in 1975, after the Arab oil embargo. It continues to this day, despite the harm it does to America’s credibility with its trading partners and the distortion it creates in the U.S. economy.
For years, the export ban didn’t matter much because the U.S. was by far the world’s biggest importer of oil. Now that North America is producing much more energy, the ban does matter. If shale-oil production continues to expand as forecast, domestic crude will be a glut on the U.S. market, reducing the incentive to maintain that production.
America needs to keep its energy boom going by encouraging production in traditional as well as alternative energy sources. That should include lifting the ban on crude exports.
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