The U.S. Oil Sector’s Role in Restraining Prices

Liberty Street Economics ^ | November 5, 2026 | Thomas Klitgaard

[karpov]

The start of the Middle East conflict in early 2026 caused an unprecedented drop in global petroleum supply. In response, oil prices jumped—but not to unprecedentedly high levels. The U.S. oil sector was a key factor in moderating the shock. For one, its steady increases in drilling helped create a large oversupply in the global market before the conflict, making it less of a challenge to offset the drop in Middle East oil output. In addition, U.S. commercial and government inventories were rapidly drawn down, filling half the gap between global supply and demand in the second quarter by some estimates. Inventories, though, are a limited resource and U.S. stockpiles stopped falling in July. As a consequence, the continued shortfall in global production has been managed by running down inventories in the rest of the world.

The U.S. economy has a history of being vulnerable to geopolitical developments. Domestic drilling stopped rising in 1970, meaning that increases in consumption had to be satisfied by imports, which doubled from 1970 to 1973. Most of this new supply was from OPEC and the 1973 crisis illustrated how domestic gasoline prices could rise dramatically because of foreign developments. This point was reinforced by another price shock in 1979.

This vulnerability led to the creation of the Strategic Petroleum Reserve (SPR), a government stockpile to be released when oil supplies were threatened, but little else could be done about the underlying trend. In the years that followed, the rise in oil demand, coupled with stagnant drilling, caused imports to exceed exports by 9 million barrels per day (mb/d) in 2010, or almost half of domestic consumption.

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TOPICS: Business/Economy
KEYWORDS: energy; oil

[karpov]

Oil Sector Girds for Possible Windfall Tax After Democrats Win. Republicans should oppose a windfall energy tax, since discouraging energy production will push prices even higher.

[escapefromboston]

Dems want higher gas prices since they don’t want you driving

[DIRTYSECRET]

The price of gas was their first debate point. Then came groceries. Easy enough to refute when you consider the prices under Biden less than 2 years ago. Their guys were packaged and slick. Each new generation of voters bring a younger perspective to government as the left welcomes them with open arms and handouts. Look at how Biden bought them off with their college loans after SCOTUS said no. There will be no conservative judges approved for the next 6 years minimum.

[bobbo666]

Our “history” of vulnerability is always because of political actions: bans, outlawing tech, etc.
We are a continent. There is no lack of resources that is not caused by politicos.