Tallahassee Journal

Fall in oil prices brings out the Know-It-Alls

Fall in oil prices brings out the Know-It-Alls

Oil prices have been cut in half in the last six months. Nationwide gas prices are now lower than they were a decade ago. Almost half of U.S. gas stations sold gas for less than two bucks a gallon last week.http://www.dreamstime.com/royalty-free-stock-photos-oil-pump-image17680658

Who should you thank for this savings? The most popular explanation is the fracking boom, which has doubled U.S. oil production since 2005. “Drivers paying less at the pump due to free-falling oil prices can thank the U.S. energy boom for generating shale oil,” wrote Fox News last week. “Thank Fracking For Falling Gas Prices,” wrote The Daily Caller.

They’re probably right. It seems so obvious that the U.S. oil boom is pushing down gas prices that few feel much need to explain it any further. But there’s something funny here. We’ve known about the U.S. energy boom for years, long before oil prices started falling. And it wasn’t long ago that most people argued our oil boom would not lower gas prices.

“‘Drill, Baby, Drill’ Fails: Why Gasoline Prices Remain High Despite Oil Boom,” stated one article in 2013. “Why More U.S. Oil May Not Mean Cheaper U.S. Gas,” argued another. Before June, it was widely reasoned that since oil was traded on global markets, and demand fro growing economies like China was ramping up, the U.S. oil boom wouldn’t lead to lower gas prices.

These arguments made sense, and were reasonable at the time. But today we’re making the exact opposite argument. And just as confidently as before. Why is it so easy to breathlessly claim that falling oil prices are obviously due to the U.S. energy boom — as if we knew that all along — when so many people made the opposite argument six months ago? Things change, and forecasting is hard. Global demand for oil slowed, and OPEC hasn’t cut production. Few foresaw those developments, and they’ve helped pushed down oil prices.