Dec. 3, 2014

Oil Price Plunge Benefits U.S. at Home and Abroad

You can see this story played out at the gas pump in your hometown.

The UK Telegraph describes the result of America’s increased oil production as “one of the most extraordinary turnarounds in modern economic history.” The Washington Post declares its effect on the world to be the “most important economic story of 2014.” And you can see this story played out at the gas pump in your hometown.

Gone are the days when gas was four or five dollars per gallon. According to the American Automobile Association, the average price for a gallon of regular gas on Dec. 2 is $2.76. Here in East Tennessee, the price of gas is expected to drop below $2 a gallon, just like in Alabama, Louisiana, Oklahoma Mississippi, Missouri, South Carolina and Texas.

Thanks to fracking and a boom in the oil production from shale deposits, the price of a barrel of crude oil is $66.88. Increased oil production in the United States hobbles hostile countries abroad while giving the wallets of the middle and lower class a boost. Did we also mention it’s good for education? Educating liberals in the effects of free markets, that is.

For years, America was tied to foreign oil, OPEC controlled the lion’s share of oil, and no matter what the feds tried, none of their schemes could break the dependence of foreign fuels. In 2005, a record 60.3% of the petroleum products consumed in America came from outside the states. The demand for oil – felt by price spikes at the pump – led to new technology for harvesting oil and that led to a boom in American oil extraction.

Today, if Texas were counted as a separate country, it would be the seventh largest oil producer in the world. According to Mark Perry, an economic scholar at the American Enterprise Institute, Texas produced 3.17 million barrels of oil per day in July. During the same time, Iran produced 3.23 million barrels – the sixth largest oil producer. But let’s not forget the American contributions of offshore drilling, the Alaskan oil fields and North Dakota.

This was a result of pure American entrepreneurship, the free markets acting on their own. Obama never created an energy policy guiding the energy now pouring out of the shale deposits around the nation. The EPA? It was too busy chasing coal companies and rubbing shoulders with environmentalists that break out in hives when they catch a whiff of industry.

As Perry writes:

> “It happened not as a result of government mandates, regulatory pressure or taxpayer subsidies. Rather, it came about primarily due to innovation, entrepreneurial problem-solving and the marketplace, with some early government assistance in developing the technology for fracking and horizontal drilling.

> "Lo and behold, the shale revolution is not only driving economic growth and putting millions of Americans to work but also providing elegant and efficient solutions to problems like foreign-oil dependence that policymakers couldn’t solve.”

The result is a price cut that can be felt by anyone with an automobile. Americans can spend more money on clothes and food instead of sinking green into the gas tank. As The Washington Post reports, “Every day, American motorists are saving $630 million on gasoline compared with what they paid at June prices, and they would get a $230 billion windfall if prices were to stay this low for a year.” Obama probably read about this one in the paper. How much did he say ObamaCare was projected to save taxpayers again?

On the world stage, America’s oil production pulls this nation’s economy ahead while stalling countries hostile to America. Last week, OPEC decided it was not going to cut oil production in response to the plummeting cost of a barrel of oil.

That was a mistake, writes the Telegraph: “Opec has misjudged the threat. As late as last year, it was dismissing US shale as a flash in the pan. Abdalla El-Badri, the group’s secretary-general, still insists that half of all US shale output is vulnerable below $85.”

Currently, the world’s oil producers are in a game of chicken with their economies. If the price of oil drops too low, the competing countries will have to stop production because the cost would not be worth it. At the moment, their cost of producing oil is much higher than that of the United States.

The Telegraph again: “The fiscal break-even cost is $161 for Venezuela, $160 for Yemen, $132 for Algeria, $131 for Iran, $126 for Nigeria, and $125 for Bahrain, $111 for Iraq, and $105 for Russia, and even $98 for Saudi Arabia itself, according to Citigroup.”

And how far does the price of oil have to drop before it starts to hurt the U.S. shale fields? $50, according to CNBC.

This sets the U.S. in the strategic position to win in the economic struggle for oil domination against hostile nations. For example, Russia is now facing serious economic challenges, and as a result will possibly slow exploration for oil and gas in its Arctic seas. According to the Brookings Institute, the Great Bear estimated the global price of oil would be at $97 dollars as it set its 2014 budget. Once the price of oil slid below $80, however, it headed for economic trouble because oil accounts for 14.5% of Russia’s GDP. If oil prices remain low, how will Vladimir Putin fund his shadow war in Ukraine?

It’s a story the late economist Milton Freidman would love: A whole industry rises up under a regulation-happy government and sets the stage for economic security here and abroad. Our analysis? Drill, baby, drill.

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