Price elasticity of oil
What do you make of the argument that the only way to lessen our dependence on foreign oil is to tap more oil wells here — in Alaska and off the coasts of Florida and California? When you consider that the oil we pump goes into a global oil market, offshore drilling makes no sense. We take the environmental risk, but we’d have to share the negligible price gains with Chinese consumers and every other user around the world.Questions for Robert Reich: Short-Straw Economics
A smart guy but no economist. Oil demand is highly inelastic over the short term. That's why the addition of a relatively small additional consumption from population growth, India, and China combined with basically flat levels of production created the enormous spike in the price of oil. So bringing more oil to market can have a huge impact on the price of oil even if it is a small fraction of current consumption.
Plus, even granting that it does only have a small impact it still raises a lot of money. Money that can be used to offset the enormous imports of oil into the US and pushes down the value of the dollar. The US is currently the 3rd largest producer of oil, about 7.6 million barrels a day. If we could boost that by 1 million day (the high end of the ANWR estimates) and it had no price impact then at today's prices could save on the order of $52 billion a year from leaving the country.
If so desired, that buys a lot of aid to poor Americans harmed by high fuel prices.The federal fuel tax raises about $30 billion a year and adds 18.4 cents to a gallon of gas. Using the revenues from the ANWR to replace this tax would be one method to do so.
