The recent rise in gasoline prices has resulted in a rise of misplaced explanations about the reasons behind it.
The latest of these came this week from Bill O’Reilly, who argued that oil companies are to blame because they’re purposefully taking gasoline and diesel out of the U.S. market and exporting them overseas to “make bigger profits.”
While his rationale may make for an entertaining conspiracy theory, the facts just don’t support it.
The U.S. actually has a surplus of gasoline, diesel and other petroleum products.
U.S. demand for gasoline has fallen significantly in the past year – down about 3 percent from 2010. People are driving less and vehicles are becoming more efficient, and the U.S. Department of Energy expects that gasoline consumption will continue to decline in the years to come due in part to better vehicle efficiency. U.S. demand for diesel is up a little more than 3 percent, a potential sign of economic recovery.
U.S. markets are well supplied for gasoline and diesel – in fact, there’s more than enough supply to meet demand. So, like any other manufacturer, U.S. refiners have two options in an over-supply situation: They can either reduce their output (meaning curtailing or shutting down refineries), or keep the business running and export the product.
It’s no surprise that some refiners are choosing to keep refineries running and adding petroleum products to the long list of goods that American manufacturers export every year. As news outlets reported earlier this year, 2011 was the first year since 1949 that the United States was a net exporter of petroleum products.
What is a surprise is that commentators like O’Reilly would choose to criticize the export of gasoline and diesel instead of treating them like any other U.S. exports – exports that are typically celebrated by policymakers and commentators as examples of U.S. economic capacity and strength in a competitive global economy.
In fact, in 2010 President Obama set a national goal of doubling exports of products “Made in America” by 2015. One of the reasons that the nation is still on track to achieve this goal is that petroleum products were a top U.S. export in 2011.
“More exports mean more jobs,” President Obama said just last week in his weekly address at a Boeing plant in Washington. “We know what we need to do. We need to strengthen American manufacturing. We need to invest in American-made energy and new skills for American workers.”
Furthermore, in the Economic Report from the President released a few days ago, the White House touted the fact that “the growth of U.S. exports over the past year has been a particular bright spot” in the economy – and it recognized the positive role petroleum product exports have played in this growth.
“Many factors are contributing to this fast pace of growth, including continued productivity growth in manufacturing, a shift in unit labor costs that favors U.S. businesses over those in other advanced countries, and technological innovation in the energy sector, which is improving America’s trade balance in petroleum products,” the report said.
In every sector of the U.S. economy, you hear about the importance of exports and trade balances. You certainly don’t hear calls to restrict the export of U.S. cars as a means to reduce the price of buying a new car; so why apply such flawed logic to gasoline and diesel?
Fuel exports are not to blame for the price at the pump. Neither are refiners. They earn pennies on each gallon they sell, not dollars. Some refining operations actually reported losses in the fourth quarter of 2011, while others barely broke even. ExxonMobil, for example, made one-third of a cent on every gallon of gasoline, diesel and other petroleum products we refined and sold in the U.S. in the fourth quarter.
I’ve blogged many times before about the fact that the single-largest determinant of the price of a gallon of gasoline is the price of crude oil – which is set on global markets where buyers and sellers react to supply and demand factors around the world.
One way to put downward pressure on the price of a barrel of crude oil is to increase supplies. The United States can play its part with policies that support access and development – including opening up its significant domestic oil and gas resources that remain off limits to exploration, from the east coast to the west coast and north to the Arctic.
Of course, one only has to look at what’s happening with U.S. natural gas supplies to see what the oil and gas industry can achieve when allowed to operate and innovate. Here, abundant supplies of natural gas from shale technologies have resulted in affordable energy supplies for U.S. manufacturers and consumers, more jobs for American workers and more economic activity and revenue in communities across the country. And, perhaps ironically to some, these supplies have led to more exports of value-added products that are being manufactured thanks to affordable and reliable supplies of American natural gas.
American motorists are understandably frustrated when gasoline prices rise – but let’s ensure they have the facts about price movements and not misplaced conspiracy theories. Exporting the facts from the debate doesn’t help anyone.