(IBTimes) - The now-familiar call for Washington to lower
energy costs by increasing domestic production of oil may not be
the most effective policy, according to this month's
Congressional Budget Office report on the nation's energy
"Policies that promoted greater production of oil in the
United States would probably not protect U.S. consumers from
sudden worldwide increases in oil prices stemming from supply
disruptions elsewhere in the world, even if increased production
lowered the world price of oil on an ongoing basis," said the
report, which outlines possible policy solutions to help
insulate U.S. consumers from energy and fuel price fluctuations
resulting from global oil supply disruptions,
Its a stance that goes against the position of the oil
industry' and of Republican presidential candidate Mitt Romney,
who have accused President Barack Obama of limiting oil and
natural gas production on federal lands, and promoting regulatory
policies that stifle energy development. More production, they
argue, means greater national energy security and lower domestic
The congressional report, however, says the
"In fact, such lower prices would encourage greater use of
oil, thus making consumers more vulnerable to increases in oil
prices," read the report. "Even if the United States increased
production and became a net exporter of oil, U.S. consumers would
still be exposed to gasoline prices that rose and fell in
response to disruptions around the world."
The United States does not have enough spare production
capacity to hold in reserve for when prices start to climb. And
because the nation's oil production is in the hands of private
firms, companies are unlikely to withhold oil for a rainy day
when they could sell it and make a profit, the report said.
And in the short term, U.S. consumers have little to no
alternative to fossil fuels when it comes to transportation. Cars
and pick-ups need gasoline, semis and many trains need diesel,
and planes need jet fuel -- all of which are derived from oil.
The more oil prices climb, so will the price of its
"In the United States, demand is relatively unresponsive to
price changes in the near term because households and businesses
have almost no ability to substitute one fuel for another in
their transportation decisions or to substantially reduce their
consumption of gasoline at low cost," the report said. "As a
result, households and businesses are limited in their
ability to reduce the costs associated with higher oil
Oil is a global commodity, too, and the actions of the United
States are not done in a vacuum.
Should the U.S. increase its oil production, other
oil-producing nations could decide to keep prices from falling by
cutting back on their own oil production, thus making the U.S.
policy moot, said the report.
Instead, the report suggests Washington could embark on
policies and possible legislation that would reduce the nation's
demand for oil, through the advancement of renewable technologies
and vehicles with even greater fuel efficiency. and the increased
availability of public transportation.
The report also suggested the U.S. could release oil from the
nation's strategic petroleum reserve to offset temporary supply
disruptions, something that has happened before.
In recent months tensions with Iran and lingering global
economic fears sent oil prices skyward, and have decreased
slightly this month.
Crude oil on the New York Mercantile Exchange on Friday traded
at $95.78 a barrel, more than $14 below its 52-week high of
$110.68. Since May 4, oil prices in New York have stayed below
$100, for the first week under three digits since February.
Gasoline prices on the NYMEX also dropped to $3 a gallon
down 37 cents from a 52-week high.
Retail gasoline prices have also dropped in recent days with
the nation's price average at $3.73 a gallon, reported the
American Automobile Association.
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