Oil: A Commodity Traded On A Global Marketplace

With gasoline prices increasingly in the news as a political story, I think it’s important to lay down a marker. The price of gasoline is, obviously, intimately related to the price of oil. And oil price fluctuations are constantly a business story. And most media outlets are generally pretty responsible in their business reporting, not resorting to “he said, she said” BS unless it’s actually unclear what’s happening. Consequently, insofar as oil is written about in a newspaper’s business pages, focus always remains on the fact that it’s a global commodity. Oil is produced and consumed in particular places, but there’s a single worldwide price of oil that’s determined by global supply and global demand. It’s not possible for one country to unilaterally alter the price its own citizens pay at the pump by altering the quantity of oil it produces. A new well in the United States has exactly the same impact on global prices as a new well in Norway or Venezuela or Saudi Arabis and thus the exactly the same impact on the price American consumers pay.

And yet turn it into a political story and suddenly all this knowledge drops away:

“What about domestic supply?” asked Sen. David Vitter (R-LA) this week. “What about the Gulf of Mexico? What about all of our other vast energy resources that we are taking off the table and shutting down?”

Rep. Doc Hastings (R-WA), who is chairman of the House Natural Resources Committee, has cataloged ways he says the administration has frustrated oil production, from suspended drilling leases to increased red tape. House Speaker John Boehner (R-OH) posted highlights of the list on his website.


“Since this administration has taken over, they have done everything to block energy development in this country,” Hastings said.

Well what about domestic supply? Why would it matter if the supply is domestic?