Co-blogger Pierre Lemieux writes:
It should be pretty obvious that the president’s power to set world prices is (fortunately) nil.
It’s actually not obvious. In fact, it’s false.
The reason has to do with 3 things:
First, the U.S. president has a lot of power over oil exploration and drilling.
Second, the U.S. produces a large percent of the world’s oil and so a substantial percentage increase or decrease in U.S. production is a significant increase or decrease in world production.
Third, the world demand for oil is highly inelastic, which means that small percentage changes in world output due to shifts in supply can cause substantial changes in world prices.
I’ll use the same data source that Pierre drew on for his post. In 2022, U.S. oil production was just shy of 18 million barrels per day and world oil production was just shy of 94 mbd. So imagine that if President Biden had not shut off some new sources of oil production, U.S. output would have been 20 mbd by now, an increase of about 10 percent. That extra 2 mbd would have been an increase in world output of about 2 percent. With an elasticity of world demand for oil of -0.2, a standard estimate, world oil prices would have been 10 percent lower. On a price of $80 per barrel, that would have been a reduction of about $8 per barrel. That’s significant. It’s certainly much more than “nil.”
