In recent months, the petroleum industry has boasted about U.S. crude oil production reaching its highest level in more than a quarter-century. But what they fail to note is that increased domestic drilling has done nothing to ease the pain at the pump for American families.
For the first time since June 1988, domestic oil production recently topped 8.1 million barrels per day. Oil prices in the summer of 1988 averaged just $16 per barrel; itís more than $107 today. So, oil production has finally returned to 1988 levels, but prices are nearly 600 percent higher? What gives?
Albert Einstein famously said insanity is doing the same thing over and over again expecting different results. If we truly want lower gas prices at the pump, perhaps it is time to try a different approach.
Ethanol is the lowest cost transportation fuel in the world. Today, it is selling for nearly $1 per gallon less than gasoline at the wholesale level. Not only is ethanol bringing down the cost of gas per gallon, it is also stretching our national fuel supply. More for less.
Oil companies like to tell us we can frack our way to energy independence. Really? Even with the recent fracking boom, the U.S. produces just 10 percent of the worldís oil; yet we gobble up nearly 25 percent of global oil supplies. And fracking is only profitable if oil prices remain elevated ó lower oil prices means less production from unconventional sources.
Indeed, oil companies seldom say anything about lowering prices at the pump. Why? Because oil prices, regardless of the country of origin, are set at the global level and subject to price shocks and supply interruptions. We see both these dynamics in play today as oil prices spike to new heights yet again because of political turmoil in Iraq and across the Middle East. Our enemies certainly understand the relationship between unrest in the region and global energy prices. The Islamic State in Iraq and Syria didnít seize Iraqís largest refinery to fuel its jeeps. It did so to deal a blow to the West. Itís been effective.
The only way to deliver price relief at the pump and weaken the grip of terrorists is through the increased use of renewable fuels. Nearly 13.5 billion gallons of ethanol are currently being blended into our national fuel supply. Thatís important because of another trend emerging in the United States and around the globe. After years of decline, oil consumption in the United States is on the rise again. Americans are driving more and so is the emerging middle class in countries like China. This increasing demand will apply upward pressure on oil prices.
We are drilling more, producing more, using more, and paying more for gas and oil. It is a sad irony, but it is the reality of a global energy commodity. Ethanolís ability to offset rising oil prices, protect against price shocks, and provide a cleaner burning domestic fuel is very real and very meaningful. An analysis by Philip K. Verleger, a renowned energy economist, found ethanol saved consumers 50 cents to $1.50 per gallon in 2012/13. A dollar on average saved per gallon translates to approximately $1,200 saved annually for the average American family.