King over at SCSU Scholars wants to tell me and the EIA that our comparative statics analysis of the impact on world oil prices from the opening ANWR is flawed. As I understand his argument, it has two components. The main is as follows:
Stein’s Law, “If something cannot go on forever, it will stop,” came to mind to me today while reading a post on Angry Bear about ANWR … These very same people are the ones who contend peak oil will drive the price of oil ever higher …
I’m not making any prediction as to the price of oil prices in 20 years so this appeal to Stein’s Law is just odd. Future oil prices will depend on a host of factors other than whether ANWR is opened up so expecting EIA to be right about their forecast that the price of oil will be around $65 a barrel is not material as to their comparative static exercise that I have appealed to.
King also seems to have a problem with EIA including a discussion that OPEC would likely reduce their supply if other supplies come on board. He seems to argue that OPEC is less than effective cartel, which is true. But even if the OPEC members follow the textbook competitive model, an increase in other forms of supply will tend to reduce their supply to the degree that the world price declines by even a small amount. Would King have us believe there would be no OPEC supply response? What kind of economics are they teaching in St. Cloud? Oh wait – we get this:
Something that adds 10-20% more to our own production and reduces imports of oil by 6% (both figures for 2025, again if you beleive EIA), certainly seems a reasonable first step, lest that economy be ours.
Fine – we reduce imports but the topic of the day here was the world market price. I see nothing in King’s post to lead me to question the EIA analysis.