Government can do more to put downward pressure on oil prices

We ask the President to send a powerful signal to the international crude oil markets that the US is ready to lead in developing the domestic energy resources of oil and natural gas, the energy that is used to meet more than half of our energy demand and will continue to do so for decades despite advances in alternative fuels. The US cannot control unrest in the Middle East, international supply disruptions, or rising worldwide demand, but it can increase world supply of crude oil by developing more of our own ample oil resources. – Jack Gerard, API President and CEO

President Obama has not been the ogre who hates the oil industry, as some paint him to be. However, as API's Jack Gerard said recently in a press conference with reporters in Washington, he can do more to help alleviate current high fuel prices at the pump, which hurt consumers and threaten our fragile economic recovery. A lot more.

First, let's acknowledge that today's current high crude oil prices are not a direct result of a tight supply situation, at least not in the United States. Crude oil production in the US and Canada has been increasing since 2009, while demand has been relatively flat in both countries. However, oil pricing is largely determined on the international market where the situation is different, and rising tensions in the Middle East, particularly with regard to new, stricter sanctions against Iran, are playing a role in oil futures speculation. The fear factor, primarily a concern about the continuing ability of oil exporting nations to ship crude oil through the Strait of Hormuz, is probably the single biggest contributor to high oil prices today.

So what can we do here in the US to lower prices at the pump? A modest increase in production, as we've seen in the past several years, may not move prices – but a significant rise in production, as we've had with natural gas, undoubtedly would force prices downward.

Already WTI pricing is trading about 20% behind Brent crude ($104 and $124, respectively, as of April 2), although not all oil bought and sold in the US is at WTI rates. US refiners buy oil on the international markets as well.

The US has long had an objective of making itself less dependent on foreign sources of oil. This is a wise goal because it would help improve America's trade balance, which has suffered due to excessive oil imports to fuel our economy. We're sending too much cash abroad and not selling enough of our products and services overseas. If states like Virginia and Alaska want to see oil companies drilling in their offshore waters, they should be able to do so without federal interference.

Increasing oil production in the US clearly will reduce our need for imports. Already we are seeing small reductions due to rising oil production from domestic sources such as the Bakken shale play in North Dakota and the Eagle Ford shale in South Texas. However, we saw a decline in production during the federal government's moratorium on drilling activity in the deepwater Gulf of Mexico for months following the Deepwater Horizon incident in April 2010. Even after the moratorium was lifted, permitting was slowed by a factor of two or three times. This is unacceptable, and the US needs to cut the red tape and enable drilling to resume at pre-spill levels. We don't need delays for the sake of delay. The regulatory agencies need to accomplish their reviews in a timely manner and get on with it.

Obama obviously recognizes the problem. In a recent speech, he noted that energy demand is up in China, India, and other developing nations around the globe. "China added 10 million cars in 2010 – 10 million cars just in this one country," he said. "And they're going to keep on going, which means they're going to use more oil."

However, Obama seems to think that the answer is to shift our emphasis to alternative fuels. He has said that renewable forms of energy are the "path to a real, sustainable energy future."

Let's be practical, Mr. President. The US cannot wean itself off fossil fuels overnight or even in the next several decades. The only realistic choice is to continue to work on improving alternative energy sources while developing domestic petroleum reserves simultaneously.

"This President has the power to open new areas for responsible development," says the API's Gerard. "He has the power to allow the Keystone XL pipeline to bring new supplies of crude oil from Canada to Gulf Coast refineries. Through the Department of the Interior, he has the power to speed up the permitting process back to normal levels. We urge him to truly do all of the above to immediately create downward pressure on crude prices that will benefit American consumers."

Switching from a pie-in-the-sky national energy policy to a workable solution would go a long way toward lowering gasoline prices near term and developing sustainable resources for decades to come.