Why the BP Disaster Has Not Boosted Oil Prices

By Dr. Lynn Reaser

Since the well explosion in the Gulf of Mexico on April 20th, oil and gasoline prices have dropped significantly. This has occurred despite a six-month moratorium declared by the White House on all new deep off-shore drilling and the cancellation of exploration lease sales in the Gulf and off the Virginia Coast. Price declines for both crude oil and refined gasoline during the past six weeks have been significant. Crude oil prices have fallen from about $85 a barrel to $71 a barrel. In California, gasoline prices at the pump have dropped from around $3.10 a gallon to around $3.00. The latter has occurred at a time when a pickup in driving starting with the Memorial Day holiday usually drives gas prices higher. Two factors have pushed oil and gasoline prices lower. First, the amount of oil affected by reductions in U.S. drilling amounts to about 80,000 barrels a day. This is less than one-tenth of one percent of the world’s total oil supply. Total crude oil production in the Gulf of Mexico amounts to just 2% of the world’s oil supply. Second, the financial problems in Greece have prompted expectations of slower growth in Europe, while beliefs that China’s efforts to cool its property market will dampen growth in Asia. Friday’s lackluster U.S. jobs number revived questions about the vigor of the U.S. economy as well. If expectations about global economic growth revive, oil and gas prices are likely to move higher again. Meanwhile, the retention of major restrictions on off-shore drilling in the United States would have a greater effect on production in future years. Now, however, our problem is clearly not the price of fuel. It is one of an environmental tragedy, which has also severely impacted the livelihood of thousands of families in the region.



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