by Bill McBride on 12/21/2014 09:59:00 AM
Sunday, December 21, 2014
To understand what the general public is hearing about oil, I watched a Yahoo video yesterday with Katie Couric explaining the decline in oil prices.
In general the piece was very good. Couric started by explaining that the decline in oil prices could be explained in two words: Supply and Demand. She discussed reasons for more supply and softening demand.
Note: from Professor Hamilton "[In October] I discussed the three main factors in the recent fall in oil prices: (1) signs of a return of Libyan production to historical levels, (2) surging production from the U.S., and (3) growing indications of weakness in the world economy."
I'd add to the discussion that the short run supply and demand curves are both very steep for oil, so small changes in supply and / or demand can cause a large change in price (see A Comment on Oil Prices).
But then Couric mentioned a myth I've heard several times recently. She said:
In fact, [the U.S.] is now the world’s largest producer of petroleum, and for the last two years, it has been selling more to other countries than it’s been buying. Who knew?"Who knew?" No one, because it is not true. Yes, the U.S. is the largest producer this year (ahead of Saudi Arabia and Russia), but the U.S. is NOT "selling more to other countries than it's been buying".
The source of this error is that the U.S. is a net exporter of refined petroleum products, such as refined gasoline. Here is the EIA data on Weekly Imports & Exports of crude oil and petroleum products. The U.S. is importing around 9 million barrels per day of crude oil and products, and exporting around 4 million per day (mostly refined products). The U.S. is a large net importer!
Note: Here is some data on natural gas (the U.S. is net importer).
Another data source is the monthly trade balance report from the Department of Commerce that shows about a net petroleum trade deficit of about $15 to $20 billion per month this year. The good news is the petroleum contribution to the trade deficit has been declining, but it is still very large.
Couric was correct about supply and demand, but it is important to note the U.S. is still a large importer of oil.