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Gas prices rise despite higher U.S. oil production

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The price of gas is governed by more than domestic oil production, according to experts. (Source: iStock) The price of gas is governed by more than domestic oil production, according to experts. (Source: iStock)

(RNN) - Back in 2008, a Republican vice presidential candidate used "drill baby drill" as a rallying cry, suggesting lower prices at the pump by producing more oil in the U.S.

With gas prices rising again, the cries for more drilling will likely increase. But drilling U.S. oil reserves are likely not to have an effect on prices, particularly since U.S. oil production is already up.

Prices are driven more by global demand than the U.S.'s supply, which is a drop in the bucket when it comes to the nation's demand.

According to the CIA World Fact Book, the U.S. has only 2 percent of the world's oil reserves – at 20.7 billion barrels - but uses 20 percent of the world's oil production.

The crude facts

The price of crude oil is set on the world market, and depends on a complicated mix of supply and demand, according to EIA's report on energy and financial markets.

Supply factors include Organization of the Petroleum Exporting Countries (OPEC), which produces 40 percent of the world's oil, and non-OPEC oil nations, which accounts for the other 60 percent.

While OPEC centrally coordinates its production via national oil companies, non-OPEC producers in North America, in regions of the former Soviet Union and in the North Sea area make non-centralized, independent decisions based on economic factors, such as improving shareholder value by making a profit.

Crude oil and petroleum product prices are also affected by events that could disrupt the flow of oil and related products to market. This includes political unrest in the Middle East and weather-related developments, such as when Hurricane Katrina affected refinery capacity in 2005.

Demand for oil in developing countries such as India and China has risen sharply in recent years - more than 40 percent between 2000 and 2010.

As a result of these factors, the price of gas has gone up despite the reduced demand in U.S., much of Europe and other advanced countries between 2000 and 2010.

Price, domestic production up

According to the U.S. Bureau of Labor Statistics, the average U.S. city price of gas in January 2002 was $1.209. It peaked at $4.142 in July 2008 before dropping down to $1.742 in December 2008 during the great recession.

The average has remained above $3 since December 2010.

At the same time prices at the pump have gone up, U.S. crude oil production continues to rise.

More than 2 billion barrels of American crude oil were produced in 2011, the highest level since 2003.

A report released Feb. 14 by the U.S. Energy Information Administration (EIA) indicated that the nation's crude oil production increased by 790,000 barrels per day between 2011 and 2012, the largest increase in annual output since the beginning of U.S. commercial crude oil production in 1859.

EIA expects U.S. crude oil production to continue rising, from 6.89 million barrels per day in November 2012 to 8.15 million barrels per day in December 2014.

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