Well, well… here is a nice little report from The Financial Times on the economics of global oil production and pricing:

Saudi Arabia has offered its main customers in the US, Europe and Asia extra oil supplies through the end of the year, a sign the world’s largest exporter is worried about the impact of rising prices on the global economy.

The Group of Seven finance ministers last month called on oil exporters to expand production. Saudi Arabia initially reacted coolly to the request, saying that global supply and demand were balanced. But the kingdom has recently taken steps to bring down prices, consulting with large refiners and offering them extra oil.

“The current price is too high,” a senior Gulf-based oil official told the Financial Times. “We would like to see oil prices back to $100 a barrel.”

The price of Brent, the global oil benchmark, has risen 33 per cent from mid-June to a peak of $117.95 a barrel on Friday. On Monday it plunged almost $4 in just four minutes, but later recovered.

Saudi Arabia last launched a similar round of consultations with major oil refiners in March, weeks before it boosted its production to a 30-year high of 10m barrels a day. Riyadh is now evaluating the response from refiners.

The nation last month produced 9.9m b/d, but the senior official said that Riyadh was now again pumping around 10m b/d. “We are consulting our clients about their oil needs and telling them we are ready to supply more,” the senior official said.

Opec delegates said Riyadh was trying to bring prices down. “The Saudis are actively managing the market,” added another senior oil official from an African Opec nation. “They supplied a little less when prices dropped to $90 over the summer and they will supply more now that prices are above $115.”

The signal from Riyadh comes as rising energy prices emerge as a contentious political issue in the US presidential race. Mitt Romney, the Republican candidate, has accused President Barack Obama of not doing enough to bring gasoline prices down.

The cost of regular gasoline surged in the US last week to $3.878 per gallon, the highest level ever for this period of the year. US retail gasoline prices reached an all-time high of $4.114 per gallon in early July 2008.

The White House last month dusted off plans to use the strategic petroleum reserve to bring prices down. But so far Mr Obama has not authorised a release, in part because opposition from allies such as Germany and, to a lesser extent, Italy, Japan and South Korea.

Hmmmm….I seem to remember that El Presidente said something to the effect that higher production of oil will not affect gas prices.  Oh yes, here are his remarks from March 2012:

The recent spike in gas prices has been another painful reminder of why we have to invest in this technology.   As usual, politicians have been rolling out their three-point plans for two-dollar gas: drill, drill, and drill some more.  Well, my response is, we have been drilling.  Under my Administration, oil production in America is at an eight-year high.  We’ve quadrupled the number of operating oil rigs, and opened up millions of acres for drilling.

But you and I both know that with only 2% of the world’s oil reserves, we can’t just drill our way to lower gas prices – not when consume 20 percent of the world’s oil. We need an all-of-the-above strategy that relies less on foreign oil and more on American-made energy – solar, wind, natural gas, biofuels, and more.

That’s right.  We “can’t drill our way to lower gas prices…”   Because, El Presidente says, the United States only has “2% of the world’s oil reserves.”   But we all know this is an outdated deception aimed at the gullible.  In fact, the Congressional Research Service reported several years ago that the U.S. has more oil and gas reserves (as that term is generally understood in the world oil industry) than any, other country on earth.   In fact, the U.S. has more oil and gas than Saudia Arabia, Venezuela and Candada combined.

According to this Investor’s Business Daily report based on a Congressional testimony by the Government Accounting Office:

Energy: The Government Accountability Office tells Congress the Green River Formation out West contains an “amount about equal to the entire world’s proven oil reserves.” So why are we keeping it locked up on federal lands?

Exploding the Big Lie pushed by President Obama that we can’t drill our way out of high gas prices because we have but 2% of the world’s proven oil reserves, Anu Mittal, GAO director of natural resources and environment, testified before Congress last week that just one small part of the U.S. is capable of outproducing the rest of the planet.

That small part is known as the Green River Formation, the world’s largest oil shale deposit, and is located in a largely vacant region of mostly federal land on the western edge of the Rocky Mountains that includes portions of Wyoming, Utah and Colorado.

As we have written in our “Oil And Gas/Fact And Fiction” series, the Green River Formation has been dubbed our Persia on the Plains, an area with technically recoverable oil in an amount estimated at four times the proven resources of Saudi Arabia.

Given that current U.S. daily oil consumption is running at 19.5 million barrels, the staggering amount of Green River reserves would by itself supply domestic oil consumption for more than 200 years. That sure blows the heck out of the “peak oil” theory that the world is running out of oil.

According to Mittal’s testimony before the House science subcommittee on energy and the environment, the U.S. Geological Survey “estimates that the Green River Formation contains about 3 trillion barrels of oil, and about half of this may be recoverable, depending on available technology and economic conditions.”

According to the president’s bizarre formulation, this oil does not count as a “proven” reserve because little drilling has been done. There is a reason for that. As Mittal testified: “The federal government is in a unique position to influence the development of oil shale because 72% of the oil shale within the Green River Formation lies beneath federal lands managed by BLM (Bureau of Land Management).”

(Emphasis Added)

In any event, Obama does not believe what he says, as usual.   While he pontificates about not being able to “drill our way out” of our energy problems, the Financial Times article reports that he has “dusted off plans to use the strategic petroleum reserve to bring prices down.”   If more drilling won’t solve the problem of high prices, then tapping the strategic reserve is useless.  Just one more example of El Presidente’s contempt for the American people.

Furthermore, even if it was true that the U.S. has “only” 2% of the world’s oil reserves, pricing is not determined by how much oil is in the ground.   Pricing is determined by how much is pumped out of the ground.   According to the CIA world fact book, as of 2010, the U.S. was producing an average of 9.688 million barrels of oil per day.   This already exceeds the production of Saudi Arabia when it wants to maintain stable pricing.    As the Financial Times article shows, however, when Saudi Arabia wants to bring down the price of oil, it ramps up its production to something around 10 million barrels per day.   If Saudi Arabia can affect world oil prices by simply putting an extra million or so barrels of oil per day onto the oil market, it is axiomatic that the U.S. can similarly affect the price of oil by getting production to over 10 million barrels or more per day.  In fact, some experts have said that the U.S. has the resources and capability to be producing over 15 million barrels of oil per day if we so choose.

One, other aspect of this subject that needs to be touched upon is the effect of Ben Bernanke’s federal monetary policy on oil prices.  Since Bernanke has decided to unleash another round of printing money and since oil prices are denominated in U.S. dollars, we will see the price of oil rise concomitant with the increase in the U.S. money supply.   In effect, then, the Saudis are underwriting our money printing by increasing oil production to offset to some degree the rise of oil prices that will naturally ensue because of the rising volume of dollars.

Take this one step further:  if the U.S. wants to recover from the Federal Reserve’s monetary inflation policy, producing increasing amounts of domestic oil is one effective way to do it.   Oil is real wealth.  Just like gold is real wealth (or, for that matter, all those incredibly valuable rare earth minerals the U.S. is sitting on but cannot develop due to ridiculous bureaucratic obstacles).  When the U.S. produces lots of oil, the wealth of the world comes to the U.S. rather than flowing to Saudi Arabia or Venezuela or Russia.   Oil, in a sense, is perhaps our greatest strategic weapon because it is one resource that the world cannot do without and it changes the balance of power globally.    In a crude sense, he who has the most oil wins.  We have it.  It’s time to start using it.

It’s time to renew that popular phrase:  Drill Baby, Drill.