Thursday, in a little-noticed move, the House of Representatives “passed legislation Thursday that would require the U.S. government to offer up offshore areas for oil and gas leasing,” with all but two Republicans and 33 Democrats voting for the bill.
During a hearing of the Joint Economic Committee hearing yesterday, Rep. Michael Burgess (R-TX) claimed that the vote was responsible for Thursday’s sharp drop in oil prices. “What happened yesterday?” the congressman asked rhetorically. “Oh, the House passed a bill“:
BURGESS: Another area of concern already mentioned by other people on this dais is high commodity prices. Consumers across the coutnry face higher oil and food prices. If we don’t want an economic revival to stall these prices have to come down. Good news yesterday was that oil prices did come down under a hundred dollars a barrell. What happened yesterday? Oh, the House passed a bill.
Burgess’s argument is based on a flawed premise. It assumes that increasing drilling would increase supply and thus lower oil prices. But supply is already high. It’s also worth debunking the myth that opening up more supply in the U.S. would cause any significant dip in oil prices over the short term. “In 2009, the U.S. produced about 7 percent of what was produced in the entire world, so increasing the oil production in the U.S. is not going to make much of a difference in world markets and world prices,” says the Energy Information Administration analyst Phyllis Martin.
What actually explains the drop in oil prices is a very different combination of factors. The drop, as Reuters notes, came largely from poor macroeconomic indicators — showing that demand is actually dropping, not that supply is increasing. Another factor was an exodus of speculators from the commodities market.
What is most clear is that a bill that was going nowhere that would open up a tiny amount of land for drilling for oil that may reach the market many years in the future was not responsible for the drop in prices. (HT: The Hill)