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Obama on Oil Markets
From the Wall Street Journal of Fri, 19 Dec 2014 19:43:42 EST
President Barack Obama
President Barack Obama Associated Press

President Obama was trained in law, not economics, but we’d have thought he’d have picked up at least some basic knowledge about the dismal science in his six years in the White House. It sure didn’t sound like it based on his soliloquy about oil markets in his end-of-year Friday press conference.

The President was asked what he might do if the new Congress sends him a bill approving the Keystone XL pipeline. Mr. Obama dodged that one. But he did ruminate at length on the market impact of “Canadian oil” that he said would be the only oil flowing through the pipeline. “At issue in Keystone is not American oil,” he said, conveniently omitting that American oil from the Bakken Shale in North Dakota will also flow via the pipeline. But let’s be generous and assume he’s misinformed.

Mr. Obama’s market analysis is more remarkable and worth quoting at length: “So there’s no—I won’t say ‘no’—there is very little impact, nominal impact, on U.S. gas prices—what the average American consumer cares about—by having this pipeline come through. And sometimes the way this gets sold is, let’s get this oil and it’s going to come here. And the implication is, is that’s going to lower gas prices here in the United States. It’s not. There’s a global oil market. It’s very good for Canadian oil companies and it’s good for the Canadian oil industry, but it’s not going to be a huge benefit to U.S. consumers. It’s not even going to be a nominal benefit to U.S. consumers.”

Let’s break that down. The oil market is global, but somehow adding to the global supply of oil via the pipeline is not going to affect the global price for oil, so it won’t affect American gasoline prices. That doesn’t seem to pass the basic supply-demand test.

But it also overlooks that refiners on the Gulf Coast can handle Canada’s heavy crude, which means more lighter crude from the Bakken and Eagle Ford Shales would be available to export onto the global oil market. If global supplies increase, all other things being equal, the global oil price would fall for everyone—including American consumers.



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