Saturday, March 10, 2012

Gas goes up, gas goes down... you can't explain that!

My favorite Bill O'Reilly moment came during an interview last year with David Silverman of American Atheists. O'Reilly was arguing that the regularity of phenomena in the universe supported the existence of God.
O'REILLY: I'll tell you why [religion's] not a scam, in my opinion: tide goes in, tide goes out. Never a miscommunication. You can't explain that.

SILVERMAN: Tide goes in, tide goes out?

O'REILLY: See, the water, the tide comes in and it goes out, Mr. Silverman. It always comes in, and always goes out. You can't explain that.
There's nothing better than a guy who calls people he disagrees with "pinheads" revealing his profound ignorance of 8th grade Earth Science.

This week, O'Reilly went on The View, and when the topic turned to gas prices, O'Reilly criticized the Obama Administration:
O'Reilly pushed back and said, "gas will be at 8 dollars a gallon." Host Joy Behar jumped in, criticizing O'Reilly's argument. "Americans know that gas prices don't have to do with Obama. It has to do with world affairs. Everybody knows that," she said. "I don't know that. I don't know that," O'Reilly charged.
Whether or not O'Reilly knows it, gas prices are set in a global market. How do we know this? The best evidence is the extent to which gas prices are correlated across different countries. If countries that have different energy policies see gas prices move the same way, then it's clear that they are exposed to the same global market. As the chart below shows, this is most certainly the case:

Source: U.S. Energy Information Agency

Given that these countries have differing energy policies, it seems that global economic trends overwhelm domestic concerns. Further, it's not clear what the Obama administration could even do here. The most frequent Republican criticism on this issue is that the U.S. needs to drill more, but the inconvenient truth is that U.S. oil production is at its highest level since 2003 and has grown considerably since 2008. Whether or not you think it's a good policy, the charge that the Obama administration opposes domestic drilling is patently false.

The U.S. accounts for roughly 9% of global oil production, so in order to impact the global price it would need to expand production far beyond any reasonable estimate of remaining reserves. Even then, the increased production would be offset by reduced output from OPEC member states (most of the world's oil is produced by countries with considerable market power).

So yes, Mr. O'Reilly, gas prices are set in a global market; we can explain that.

No comments: