Obama, Congress Should Act To Keep Oil Cheap

Cheap Gas Is Like A $60 Billion Tax Cut

Washington Examiner Editorial: In June 2014, a barrel of oil cost $115. Currently, it goes for about $60. The historic plunge continued Monday as Saudi Arabia made clear it had no plans to cut production in order to prop up prices.

This week, the Wall Street Journal told more of the incredible story behind the recent oil bust. Contrary to what some say, the Saudis are not letting prices fall to crush the new crop of North American shale producers. The reality is more subtle. The Saudis and the Organization of the Petroleum Exporting Countries' other Arab members have accepted that with U.S. production expanding so rapidly, U.S. shale operators will benefit from any OPEC production cuts by gobbling up more market share and cashing in on the higher OPEC-set prices.

And so OPEC's aim in letting production continue is not to stop the U.S., but to slow its growth, so that oil prices (they hope) will rebound. It's a risky bet. Many shale producers can remain profitable, at least on an operating basis, with oil as low as $40 a barrel, but no oil-dependent OPEC government can balance its budget selling oil at prices anywhere near that low.

In the meantime, OPEC's inaction has nearly given rise to a free market in oil, creating panic among the ranks of petro-despots (including both OPEC leaders and Russia's Vladimir Putin) and immense benefits for American businesses and consumers. What better illustration could there be of how markets work when self-interested players make rational choices? The world's oil oligopolists are suddenly panicking, turning against and underbidding one another, behaving like real market actors do in a desperate scramble to maintain market share.

There is a lesson here. Many opponents of policies that promote U.S. oil exploration and infrastructure argue that the resources don't help Americans if they are shipped overseas. Current events demonstrate how wrong they are. Oil is a commodity, and it sells at a world price. Significant new production can change that price dramatically — in this case, it has nearly halved the price in a matter of months.

OPEC's manipulation of prices, it turns out, had its limits. The extraordinarily high prices of the last few years spurred new innovations in energy exploration in the U.S. — especially the perfection of hydraulic fracturing and horizontal drilling techniques. The Saudis and other OPEC countries are now reaping the benefits of their own greed.

If you like paying less for gasoline, there is a clear path Obama and the new Congress can take to keep prices down. Simply remove government obstacles — including everything from slow permitting processes on pipelines to the existing ban on U.S. oil exports — and it will immediately exert some amount of downward pressure on oil prices. Such actions can reduce shale producers' costs, expand their customer base, and make OPEC's goal of slowing down U.S. production that much less realistic.

Putin and the world's other bad-apple oil potentates have had lots of time and money this decade to harass U.S. interests in their respective corners of the world. It's high time they were given something bigger to worry about.

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Tags: Editorial, Economy, Energy And Environment, Oil, Oil Exports, Saudi Arabia, OPEC, gasoline prices, Washington Examiner To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. and "Like" Facebook Page - Thanks!