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Why More U.S. Oil May Not Mean Cheaper U.S. Gas

Author: Michael A. Levi, David M. Rubenstein Senior Fellow for Energy and the Environment and Director of the Program on Energy Security and Climate Change
April 16, 2013
Bloomberg.com

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Oil skeptics like to point out that the U.S. consumes 20 percent of the world's oil but owns only 2 percent of global reserves. Such lopsided numbers, they insist, destine the U.S. to depend on foreign crude -- unless it slashes its consumption and embraces alternatives. Lately, though, a surge in U.S. oil production appears to have turned the tables.

In an interview with Bloomberg News early last year, Adam Sieminski, an analyst who would soon leave Deutsche Bank AG to join the White House staff, captured the mood: "For 40 years, only politicians and the occasional author in Popular Mechanics magazine talked about achieving energy independence. Now it doesn't seem such an outlandish idea."

Booming oil production will change the U.S. economy, international security and the global climate. But for many people, a simpler question matters most: What will U.S. oil abundance mean for the price of gasoline at the pump?

Because oil is traded globally, prices ultimately depend on how much is produced in the entire world, not just in the U.S. A world where the U.S. produces 10 million barrels of oil daily won't necessarily have lower prices than one where it produces 5 million. After all, U.S. production was higher in 2010 than in 2009, but oil prices were higher then, too.

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