Politics of Power: United States Oil Production

This past summer has been marked by wild news cycles in the energy industry. From the unleashing of ISIS on the Middle East to the beginning of American crude oil exports, these past three months have witnessed a shakeup in the global energy market. However, throughout all of this, the only constant has been high global oil prices and even higher domestic gasoline prices. With the price at the pump mirroring those record highs of 2008, most Americans do not know where their gasoline comes from. According to a University of Texas poll, 75 percent of people polled think that the majority of American oil imports come from the Middle East. In reality, only a quarter of American imports come from the Middle East, with the lion’s share coming from North and South America. In fact, we imported 1.14 billion barrels of oil from Canada, more than anywhere else.

Before the oil can be used for transportation and industrial needs it has to be refined. Nearly all imported and produced oil is refined in the United States.  About 41 percent of the country’s oil capacity is in Texas and the Gulf states, which is why gas prices quickly rise whenever there’s a hurricane in Louisiana. Another 20 percent takes place in Midwestern states and about 18 percent of America’s oil is refined into gasoline along the East Coast.

Though this country imported a staggering 3.869 billion barrels of oil in 2012, this doesn’t even come close to matching the United States’ insatiable appetite for oil. And that’s where the most important fact comes in: 60 percent  of the oil that Americans use is produced right here in the United States. Since 2005, a combination of increasing domestic production paired with decreasing consumption has led experts to project that the United States will meet its energy needs by 2020. A major part of this declining demand lies on the transportation side. Federally mandated efficiency standards will reduce the demand for gasoline and diesel even if Americans drive more cars. The U.S. vehicle fleet is projected to grow from 250 million to 305 million by 2025 but federally regulated corporate average fuel economy (CAFE) standards will improve average fuel efficiency from 23 miles per gallon to 40 miles per gallon in this same time frame. This means that United States gasoline demand has the potential to shrink from 8.9 million barrels per day to 4.8 million barrels per day.

However, it is important to remember that the price of oil is based on an interconnected global market. So, even though the United States may produce more oil than it consumes in 2020, the price Americans pay at the pump is still connected to production around the world, from Saudi Arabia to Venezuela. The dramatic increase in U.S production has done and will continue to do wonders to dampen shocks on the supply side, but in the end a stable energy market abroad is just as important to American gasoline prices as production in Texas and North Dakota. As the midterm elections approach it is important to remember that even though catchphrases such as ‘American energy independence’ and ‘self-sufficiency’ will be thrown around, we are more connected to the global energy market than ever before, and the domestic price of gasoline is, in reality, very much a global price.