“It should be stipulated the G.O.P.’s “Drill now!” mantra is, from a policy standpoint, every bit the same red herring as the gas tax holiday. It will be years before even a drop of oil is reaped from off-shore drilling, and even that won’t really matter in the context of a global market in which demand is nearing 100 million barrels per day. Sure, off-shore drilling won’t hurt gas prices - in the same way that returning an empty Coke can for the nickel deposit won’t hurt your effort to save up for a house. The decision on whether to allow off-shore drilling is utterly inconsequential to the matter of lowering gas prices...”
Imagine you have an oil well in your back yard, and you see the price of oil going up and up and up, driven by demand from China and India, with much higher prices predicted for the future. When your oil well contractor tells you that if you give him a few bucks, he can increase your oil well flow by 20%... do you do it? Or do you tell him to wait a while, because you will get much more money for that oil later? (e.g., sell that barrel of oil now for $120, or next year for $200?)
Then ... you hear that the FEDs are going to start drilling in ANWR, and off the coast of Florida over by Cuba ... thus increasing the supply in a few years. You now get worried that the price will continue up a little bit for a few years, then fall when ANWR and Florida oil come on line. What do you do now? You probably open up your oil spigot as wide as possible to get as much money as possible while the price is high, expecting the price to drop later. Other people do the same, increasing the supply, and prices go down NOW.
Thus, announcing that we are going to start oil production in ANWR and offshore in a few years results in decreases in prices today. Unlike politician (who are only concerned about the next election) and journalists (who are only worried about making the next deadline), oil producers look long term, and act accordingly.
And Adam Smith’s “invisible hand” strikes again, providing lower prices when the government stops interfering in the marketplace.
Thank you for that very clear explanation.