a nose dive in oil
by Cynthia Flores
Published: July 21, 2008
On July 14, 2008, George W. Bush lifted the executive branch moratorium on off-shore drilling. Literally as he spoke, the price of a barrell of oil dropped $9.26. That’s a 6.3% nose dive without so much as a single drop of oil being added to the supply chain. While proponents of alternative fuels may continue to make logical arguments against our country’s dependency on oil, the idea that an increase in supply will have no affect on price has been removed from their list of talking points.
During what has been in many cases a disasterous presidency, I would like to take this rare opportunity to tip my hat to the oil-executive-in-chief. Well done, Mr. President.
Now the attention turns to Congress which placed the moratorium on off-shore drilling back in 1982 but soon has to decide what to do about the moratorium’s September 30th expiration date. And so the stare down has begun, with Bush charging that failure to act is unacceptable and Senator Feinstein of California claiming that Bush is deluding the American public into believing that new offshore drilling is a quick fix to $4 per gallon gasoline.
In Senator Feinstein’s defense, I will admit that “deluding the American Public” may be one of Bush’s bad habits, but clearly her allegation does not apply in this case. Bush may not know a whole lot about assessing educational achievement, he may not have a clue about post-victory planning, and his budgeting skills are obviously horrendous; but there’s one thing he does understand: oil markets, especially futures.
When the media talk about oil trading at $140 a barrell, they are referring, in some degree, to the ”future” price of oil. The ”future” price meaning that the buyer is paying today for oil that will be delivered at some future date, be it next month or next year. For example, many of the airlines that are facing a financial crisis due to the rise in the price of crude are today fueling their jets with gasoline they purchased last year when the price of crude was $70 a barrel. The “crisis” is not due to their current fuel costs but to the price they’ll pay in the coming month and more importantly, the coming decade. Therefore, when you tell the players in the oil market that the U.S. is going to tap millions of gallons of OCS crude, it ruins their long-term plans. Now, in order to lure buyers into a contract that calls for delivery in 1 or 2 or 5 years, they have to discount their price. Otherwise consumers will just wait and buy their contracts in a year once the oil rigs have had time to work their magic. The economics of the issue could not be more simple.
So in response to the representative from Illinois, Rahm Emanuel, who called Bush’s act “a political stunt” and stated, “If the president wants to lower gas prices, he should stop hosting press conferences and start taking action,” I say - you’re wrong. Hosting press conferences that unravel the red tape which keeps us from tapping our own oil reserves is how you take action. And sir, you’ll see today’s crisis will soon be a thing of the past.
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July 22nd, 2008 at 2:19 am
Wrong Cynthia,
Bush is still “deluding the American public.”
July 22nd, 2008 at 7:46 am
Sorry Slim,
Cynthia is correct, at least in this instance. As I ’speculated’ here: http://www.therebuttal.com/2008/07/08/oil-and-water-a-proposed-solution-to-dependence/
The Speculators are betting on ever tighter supplies holding the price up; OPEC is betting that America will paralyze itself into inaction, and knee-jerk responses like yours, Slim, are just what they count on. If, or when, America shows any real backbone in instituting any drive for new sources of energy, the price of oil will drop…just as Cynthia points out that it already has.
Brava Cynthia
July 22nd, 2008 at 11:52 am
I don’t know what parrallel universe the opponents to drilling live in that allows them to consistently deny that increasing supply of a product will not bring the price down.
July 22nd, 2008 at 3:26 pm
Their argument is more that starting the process right now will not affect prices in the near term, because it will take years for the increased supply to come on-line. What they ignore is the immediate psychological and socioeconomic effects of a serious policy change…which can have, and so far has had an immediate effect.
July 22nd, 2008 at 3:42 pm
What many people either ignore, or don’t understand with U.S. oil is that while oil companies may lease a certain percentage of land, even if they find oil on the land they have leased, it does not give them automatic permission to extract that oil. They have to ask to take it once they find it, and they have in the past been denied. Can you imagine spending money to lease land, spending money to explore for oil, spending money to ask for permission to extract the oil and then being denied permission? That’s a lot of money for zero return. What are the chances you are going to invest in new exploration even if you do currently have land leased to you. Not much if you are smart. Now Congress has thrown a new curve and said if you don’t explore the land you lease you will lose the lease. Talk about being between a rock and a hard place.
July 24th, 2008 at 9:31 am
Can you imagine spending money on your congressmen’s paycheck, spending money on your congressmen’s pet projects, spending money to ask congressment to do something and then being denied permission? That’s a lot of money for zero return.
July 28th, 2008 at 3:35 pm
Bush did not want to stop the flow of crude into the strategic reserves. He was forced! He never calculated the price would drop; he doesn’t get the credit. Current dips in crude are simple market corrections of a rigged system that is making a few billionaires. and partially offsetting my retirement savings which are otherwise floundering. Thursday, July 10, 2008 Los Angeles Times has some hard numbers put out by AIRINC. It shows that while some oil producers have more affordable gas prices, it is not a hard and fast rule. There is no guarantee! Ask Brazil, Russia, or Norway. It also shows (even though you don’t mention it, but as it has been mentioned) China and India importing together only fifteen percent of the top ten oil importers in the world buy a day, we in the US are importing almost 38%. My opinion? We are still in charge of our destiny… Moms, keep driving your SUVs to the gym solo! The economy is changing and you need to fear if you are not prepared! Can you believe you are paying 4.22!!!????
July 29th, 2008 at 2:07 am
So far $4.22 isn’t high enough to get me to change my driving habits. I think most Americans are like me, total morons.
July 29th, 2008 at 8:12 am
Slim,
I think that many car/fuel habits are changing in this country. According to Automobile Magazine, “The Tipping Point” Sept. ‘08, as of April this year the Ford F-150 is NOT the number one selling vehicle in the country for the first time in…26 years! It is still #5, but 4 smaller sedans have passed it.
According to reports published in the Annapolis Capital, travel plans are being affected, and over-all gas consumption was down by 5% from January of this year through the 4th of July weekend…that’s DOWN as summer vacation season begins.
I have to say that in my opinion, most Americans are in fact not like you Slim.
July 29th, 2008 at 8:13 am
Oh, and here’s the Link…
http://www.hometownannapolis.com/cgi-bin/read/2008/07_01-20/TOP