History: After decades of stable oil prices, beginning in the early 2000's the combination of several drivers have fundamentally changed global oil markets: (1) Ongoing war and political unrest in the Middle East; (2) Devaluation of the U.S. Dollar; (3) A dramatic increase in world oil consumption from developing economies; and possibly, (4) The unprecedented levels of money flowing into oil speculation markets since banking deregulation.
Can We "Drill Baby Drill" to $2 Gas?: A central theme in this year's election campaign rhetoric on high gas prices is supposedly simple Econ 101 -- Supply and Demand. Under this argument, if environmental regulations were reasonable allowing more oil drilling, the increased supply would reduce the price of gas to a $2 range. Since the economics are so simple, we should be able to just look at the pump price savings in Canada -- as they produce much more oil than Canadians consume. But Whoops! -- gasoline prices in Canada exactly track those in the U.S.
Conclusion: While there are numerous benefits of increasing domestic oil production (e.g., creation of good jobs, greater energy security, improving the U.S. trade deficit) -- expectations of meaningful reductions in oil and gas prices isn't one of them. Simply stated, gasoline prices will always be driven by the world price of oil (an internationally traded commodity).
Extra Credit: If you want to be an A+ Student on market drivers for oil and gasoline prices, read this article from the Canadian "Oil Patch". The reason oil exploration is currently booming in Canada and the U.S. is because of high prices. For example, extracting oil from tar sands (the source of the Keystone project) can cost up to $40 per barrel. Without high oil prices, tar sands would not be economic compared to Middle Eastern oil (which costs 50¢ to $2 per barrel to extract).