Domestic Crude Oil Lowers the Risk Premium

Mark Maddox, former senior official at the Department of Energy and now an energy fellow at the American Action Forum, makes several good points today in his Washington Examiner editorial:

 

"In our national debate over domestic oil production, too much time is spent discussing whether more production can lead to oil independence and too little time on the potential impact on liquidity in global oil markets. Lost in the back and forth is the fact that increasing domestic production by any amount increases spare capacity globally and lowers the risk premium.

In the debate over how, when and where to produce energy, it is critical that policymakers ask the right questions. Rather than debate whether America can become an energy island, they should be asking whether we can raise domestic production in order to minimize the inevitable [supply disruptions] and to ensure a relatively stable global supply and price for oil." 

Bottom Line: Supply matters.