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April 03, 2008
Is there one oil price?
There's a common view that if the U.S. could become independent of foreign-produced oil, perhaps by pumping more oil from our own country, then we wouldn't be impacted by changes in world oil prices. Is this a valid expectation? Listen
Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:
"It's nice to think about, and it would be nice to have as a goal, but it's really not going to happen. And the reason is, there is really one world price of oil. An economist several years ago, I think, came up with a very good analogy explaining this. He said that if you think of all the world's oil as being put into a big bath tub, and one country's oil in that bath tub is really indistinguishable from another country's oil - it's all oil - that means there's going to be one price of oil. So every user sort of dips their straw into that bath tub and pays the price and takes out the oil that they want and need. So if we were to produce more oil from our country, yes, that might help the world supply, and it might actually put some downward pressure on the price of oil, but that's not going to insulate us from fluctuations in oil price movement."
Posted by Dave at April 3, 2008 08:00 AM