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I've read an article on WSJ:

Yet his Administration is now imploring the OPEC oil cartel to pump more oil so U.S. gasoline prices don’t rise more than they already have on Mr. Biden’s watch.

That's surprising. From what I remember, in 2019, U.S. energy production exceeded U.S. energy consumption on an annual basis for the first time since 1957.

Why then it's again asking OPEC about prices? Can't the US just blow them down by increasing oil production?

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    That's an opinion piece, not a news article, so I'd be hesitant about paying too much attention to the claims they make in it. While the WSJ's reporting is generally respected, the opinion section (as in most newspapers across the political spectrum) is a separate beast with very different standards for accuracy and a clear political position that it advocates. Can you find an actual news source that reports on this?
    – divibisan
    Commented Jul 9, 2021 at 14:49
  • 1 and 2 and 3 and 4 although I'm not sure imploring is a good description
    – CGCampbell
    Commented Jul 9, 2021 at 16:14
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    It is a propaganda trick. By imploring OPEC to let prices fall he is implicitly stating that the high prices are decided only by OPEC.
    – FluidCode
    Commented Jul 9, 2021 at 22:15

2 Answers 2

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Imagine a free market with different consumers, who all have different limits of how much they are prepared to pay before they consume less or look for an alternative, and different producers, with different capacities and costs for production at their sites.

  • If you assume an inelastic supply, then prices will rise until enough consumers stop buying. Basically, if there is demand for 100 barrels a day and production is 90 barrels, the price won't rise by 10%, it will rise until 10% of consumers give up buying.
  • With an inelastic demand, if there is demand for 100 barrels and production is 90 barrels, prices will rise until producers find it worthwhile to produce 10 more barrels -- drilling deeper wells, extracting shale oil, etc. The new price will then be the price it costs to produce the 100th barrel, not the price to produce an average barrel. (Always plus taxes and profits, of course.)

In reality, both supply and demand are somewhat elastic, but neither can react immediately. Motorists who have purchased a gas-guzzling car cannot simply switch to a more efficient one, and wells and refineries have to be built before they can start.

So the best way to reduce gas prices in the US is to bring more suppliers with low production prices online, not increase the domestic output. Or to tell the Americans to drive smaller cars, but that seems unpopular.

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The answer to this question is related to the cost of production: indeed the US is self-sufficient, but most of the oil production in the US is now shale oil. In average shale oil has a higher cost of production than conventional oil: Saudi Arabia can produce at under $10 per barrel, whereas shale oil is at least $35 per barrel.

This means that the US shale oil production depends on high prices, so the US can increase its oil production only if the prices are high and expected to stay high long enough:

With these costs paid upfront for a comparatively short production life compared to a conventional well, it makes sense for the shale oil industry to suspend new wells when world oil prices dip and ramp up when the prices are strong. That means there are a lot of shale oil deposits sitting idle when crude oil prices are hovering around $50 a barrel.

This also means that driving prices down hurts the US shale oil industry, it's a strategy that Saudi Arabia has used before. This might be a side effect that the Biden administration is interested in in terms of environment policy (this is an interpretation, I don't know).

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