Why the U.S. Oil Boom Hasn't Lowered Gas Prices (and Won't Anytime Soon)

As global oil prices continue to rise, Americans are feeling more pain at the pump. The average price for a gallon of gas has jumped more than 30% in the past month, from $2.93/gallon to $3.88/gallon.

But as politicians like to remind us, the U.S. is a net petroleum exporter. So why does it matter how much oil costs halfway around the world? Can’t we just “drill, baby, drill,” and tap into our abundant supply of homegrown crude oil?

Sadly, it’s not so simple. Here’s why.

Image source: Getty Images.

Apples to apples

Here’s an easy math problem. If I eat five apples every day, but I can pick six sweet red apples each day from an apple tree in my yard (which, let’s pretend, magically produces apples year-round), how many apples would be left uneaten every day? Exactly: one.

In that scenario, I’d never have to worry about the price of apples. I could get all the apples I needed from my tree, and even have some left over.

Well, unless I needed tart green apples to make an apple pie. If my apple tree only produced sweet red apples, I’d still have to buy tart green apples at the store, because I can’t turn one kind of apple into another (the tree isn’t that magical).

The fundamental issue with U.S. petroleum is similar: We’re producing plenty, but not the right kind.

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Apples to oils

The U.S. shale oil boom is relatively recent. Up until 2020, the U.S. was a net importer of petroleum, and we’re still a net importer of crude oil (the green apples in our metaphor).

That oil mostly comes from places like the Middle East, Canada’s oil sands, Venezuela, and the Gulf of Mexico, all of which produce a thick sulfuric type of oil called heavy sour crude. Almost all U.S. oil refineries (pie factories) that turn crude oil (apples) into gasoline (apple pie) are built to process heavy sour crude (green apples) and not light sweet crude (red apples) like the kind that **ExxonMobil **(XOM +2.71%), **ConocoPhillips **(COP +1.87%) and other U.S. shale drillers are now cranking out of the booming Permian Basin of West Texas.

Instead, most of that light sweet crude gets exported or refined into other petroleum products like propane (apple cider) that are then exported. Propane alone represents about 25% of all U.S. petroleum exports.

That’s why we import more crude oil than we export. Here’s why that’s unlikely to change.

Image source: Getty Images.

No real alternative

Building enough refinery capacity to process enough domestic crude oil into gasoline to meaningfully affect U.S. prices at the pump would take years if not decades. And there’s really no incentive to do so: U.S. gasoline demand isn’t expected to increase substantially over the next few years.

Without sufficient domestic light sweet crude refinery capacity, government mandates like export controls wouldn’t make sense. And in any case, the Trump administration has indicated it’s not interested in such interventions.

It’s possible that we will eventually “wean ourselves from foreign oil,” in the words of numerous political figures over the years. But it’s going to be a lot harder than just upping domestic production. Until then, we’re all at the mercy of global oil markets.