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Why Abundant Oil Hasn't Cut Gasoline Prices

Foreign demand, quirks in biofuel laws, and logistical chokepoints have driven up the cost
Why Abundant Oil Hasn't Cut Gasoline Prices

For the first time since 1995, the U.S. will likely produce more oil than it imports. That’s great for the country’s trade balance, but the benefits of all that cheap domestic crude still haven’t shown up at the one place it matters most: the gas station. Even as fuel consumption has fallen to 16 percent below its 2007 peak, gasoline remains about a dollar higher than the average price over the past decade. So far this year, gasoline prices have risen 11 percent nationwide, to $3.65 a gallon.

Simple economics suggest that higher supplies and lower demand should translate into cheaper prices. That presumes today’s petroleum markets are simple. Over the last year, the oil boom has upended the long-held belief that U.S. production would inexorably decline while America’s appetite for gasoline continued to rise, leaving the country hopelessy hooked on foreign crude. As the opposite has occurred, regulatory and transportation systems that grew out of those old assumptions have become increasingly outdated, preventing the forces of supply and demand from working efficiently.