Originally Posted by jcrox
The problem with drill baby drill is the theory relies on private, for profit, oil companies injecting more product into the market to bring the price as a whole down.
If they merely replace existing product, i.e. inject 500,000 barrels a day from the U.S. but the Saudi's cut back 500,000 barrels a day, it's a zero net sum and nothing changes.
So, we have to believe that...
1. All the new exploration will result in MORE product in the market, not replacement product
2. Private for profit oil companies are willing to self-inflict lower profits by over producing in a market which proves everyday it will bear the current costs.
I'm not buying #2 for a single second.
Until consumption drops to a point that oil company's profits are harmed the price of fuel isn't going anywhere no matter how many permits we hand out.
How can you say that when it's easy to see oil prices fluctuate all over the map over the course of a year or two? If I remember correctly prices were down under $60/barrel ~4 yrs ago, now they're hovering around $100. The market isn't bearing the current costs- demand is declining, and current oil prices are part of the reason it's tough to break out of this recession.
You're right that oil is a fungible commodity and if another country drops production enough, prices stay stable. The problem with that is, once the US and Canada produce enough of it, the power of OPEC is broken. Free market forces start to come back into play, and the cartel can no longer control prices effectively. If north america produces 5,000,000 barrels/day and Saudi Arabia cuts back 5,000,000 barrels a day..... well, they just won't do that, because that's half their production and they'd be screwing themselves.