Can the U.S. President Have an effect on World Oil Costs?

Co-blogger Pierre Lemieux writes:

It ought to be fairly apparent that the president’s energy to set world costs is (fortuitously) nil.

It’s really not apparent. Actually, it’s false.

The explanation has to do with 3 issues:

First, the U.S. president has a variety of energy over oil exploration and drilling.

Second, the U.S. produces a big % of the world’s oil and so a considerable share improve or lower in U.S. manufacturing is a major improve or lower in world manufacturing.

Third, the world demand for oil is extremely inelastic, which implies that small share adjustments in world output as a result of shifts in provide may cause substantial adjustments in world costs.

I’ll use the identical information supply that Pierre drew on for his submit. In 2022, U.S. oil manufacturing was simply shy of 18 million barrels per day and world oil manufacturing was simply shy of 94 mbd. So think about that if President Biden had not shut off some new sources of oil manufacturing, U.S. output would have been 20 mbd by now, a rise of about 10 %. That further 2 mbd would have been a rise in world output of about 2 %. With an elasticity of world demand for oil of -0.2, a typical estimate, world oil costs would have been 10 % decrease. On a worth of $80 per barrel, that may have been a discount of about $8 per barrel. That’s vital. It’s actually way more than “nil.”