Lottery Post Journal

Think we can't drill our way out? Think again

Yes, we can drill our way out of high oil prices.

Of course, it has nothing to do with all the new oil we pull out of the ground.  It has to do with what happens in the marketplace when news of more drilling is announced.

Not convinced?  Just check the new this morning.

http://news.yahoo.com/s/ap/20080716/ap_on_bi_ge/oil_prices

In morning trading, the price of oil suddenly dropped $6.44 a barrel.

The reason for the big drop?  The government reported that it has more oil on-hand than it last reported.

Did you hear that correctly?

We have more oil.

The price dropped.

The reason many liberal-minded people don't get that concept is that they are not accustomed to thinking like a Capitalist.  The government is not in charge of prices, the marketplace is, and those folks are really only comfortable dealing with subjects in which the government has control.

If some government regulation was responsible for the lower prices they'd be like, "OK, I get it, the government decided that the price must be lower, so the evil company was forced to do the right thing."

In a Capitalist society (which is what the USA is all about), the actions of the free marketplace sets the prices, so to adjust prices, the only thing the government can do is to take some kind of action that it knows will convince people to act in a certain way.

And that's why drilling will lower prices.

The reason oil is more than $130 a barrel, and not $50 or $60 a barrel is purely because of futures traders.  These people make money by "wagering" that the price of oil will rise in the future.  After purchasing a futures stock, if the prices rises, they make money, if it falls they don't.  (Selling short is wagering that prices will fall.)

So all these people are nervous about anything that could cause the price to fall.

If the US Congress refuses to lift the ban on offshore drilling, they are all pretty certain that the prices will stay high, because the demand for oil will continuously outstrip the supply.

If, however, Congress grows a backbone and lifts the ban, all the sudden there is the possibility that the supply will meet or exceed the demand, and the price will drop as a result. 

So all these people will not be wagering that the price will increase.  They will instead wager that it will fall, and the cumulative effect of the wagering, day after day, will be the reverse of what drove up the prices, until the marketplace is back to a reasonable level.

These people are not going to sit around worrying about the number of refineries, how much ethanol we're making, how many electric cars are on the road, or anything else that normal people are looking at.  They are looking at supply and demand of crude oil, plain and simple.

Now, I have outlined in several other blog posts (and comments) all the various things we as a country should be doing to free ourselves of our outrageous dependency on foreign oil, and to become energy-independent.

None of those things changes.  The price of oil, and the price of gas at the pump is just one thing, and we must not stop once we lower the price again.  The lackadaisical attitude of the Congress is what got us into this position to start with, and it can't be repeated.

But, just like building a proper border fence is the first step in securing our borders, lowering the gas prices by drilling more is an essential first step on the road to energy independence.

11 Comments:

  • People fail to realize China's ever inceresing hunger for crude. Haven't seen the latest data but they're predicted to surpass our consumption in a year or so. Chinese love their newfound prosperity and are automobile crazy, meaning paving roads with asphalt, plus manufacturing more things from plastic. Long gone are days of rickshaws and bicycles.

    Maybe the Pres. was hinting at releasing our reserves as Newt suggested. ;-)

    By konane, at 12:03 PM

  • Yes, I think so too.   It is wonderful to see that conservatives are starting to get their heads screwed on straight.

    By Todd, at 12:34 PM

  • A driller working in Texas called in on an AM radio show last week claiming that whole idea of taking 10 years to make oiol come online was a bunch of BS. He said that he according to his experience with a recent drilling in Texas, from the time they start drilling, the oil can come online with 58 days.

    As far as the traders go, I think it was congress who lowered the margin from 50 percent down to 5, making it easier for the buyers to hold on without cashing out. That needs to go back to 50 percent.

    You're absolutley correct about news on the market place affecting prices. All they have to do is say something about drilling on our land, even if they weren't going to, and the price would immediately drop.

    Gull island has plenty of oil and some officials have stopped the process and ordered it capped off. What a shame.

    By pacattack05, at 12:54 PM

  • Let us not forget that demand has gone down also. It also important to remember tha futures are in the FUTURE it is not the actual price per barrel therefore the whole things lags in time to affect pump prices. Oil isn't just for gasoline it has many other uses. Pac glad your back! Couple of months for land rigs several for proven offshore sites

    I think the key is: once they know we are on it the price will fall markedly, I heard today less than $90 a barrel by Jan 09'.

    By jarasan, at 3:34 PM

  • the price of oil will go up at the first sign of trouble be it a hurricane in or near the gulf or our prez saying he will make a visit to Iran with the armed forces in toe.

    By four4me, at 4:33 PM

  • @4_4_me Your optimism is always overwhelming.

    Actually the Prez is sending a rep. over to Europe to listen in on the talks with Iranians.

    The threat of increased Atlantic hurricanes has been lowered by the climatologists, didn't hear too much about that in the news.

    Oh yeah, the Iranians also have mastered Photoshop 3.0.

    By jarasan, at 5:26 PM

  • @j: :-D

    By Todd, at 9:06 PM

  • Yea I'm optimistic about a lot of things. I am seriously concerned about the fuel problem i have an antique car and 2 antique motorcycles they ran on regular leaded fuel years ago now i have to put unleaded blended fuel in all of them. Had to modify them so the valves wouldn't burn up.

    In the near future when they phase out gasoline altogether then i will have to convert them to whichever alternate fuel they allow us. If they were to phase out gasoline and other liquid fuels i have to part with them or donate them to a museum or turn em into ornaments.

    Because they should never be battery powered or altered to the extent they aren't original.

    On the other hand if i woke up tomorrow and they allowed hydrogen powered vehicles then i would get one.

    I couldn't deal with an electric product because i live in the city and i doubt the city will allow us to have extension cords all over the side walks so we could charge up our vehicles.

    I was pumping gas when it was a quarter a gallon. Now regular is 4 dollars plus. 2 bucks a gallon 3 years ago. Its ridiculous. They have jacked up the fuel prices just like they did property values. And for what reason so they could get richer. I didn't see any Americans standing in front of the white house protesting this. 30 yrs ago there were a million people protesting about this where are the sheep now taking it up the a-- without putting up a fight.

    Arguing about it on the Internet give me a break.

    By four4me, at 11:51 PM

  • @F4M: Have you noticed that the sharp rise in gas/oil prices in recent years reflects the sharp rise in foreign oil that the USA is dependent upon?

    There is no mysterious "they" who is getting rich. Since the beginning of the last century when the American oil companies first started, prices have remained low, probably not even keeping pace with inflation. The price of milk had increased more.

    Thye price did not start rising to high levels until the Carter administration, which upset the balance in Iran and the Middle East by asserting that the USA's presence there was "bad", and that we should not prevent the Mulahs from taking power. Also, 40 years of liberal control of the Congress supported the wrong turn our country was taking.

    The environmental movement was also kicking into gear, and started placing shackles on American companies. So we became more and more dependant upon foreign dictators for oil, which is the lifeblood of our economy.

    If you have ire to direct, I believe the best way to direct it is at the real culprits: liberal policymakers who have been setting the stage for years, and the murderous dictators who they have tied us at the hip to.

    By Todd, at 9:34 AM

  • If the counter-productive threats of military strikes against Iran were to stop, the price of oil would drop like a rock. 40% of the world's oil supply must pass through the Strait of Hormuz. The threat of that supply being interrupted is the main cause for the current skyrocketing prices, not supply or demand. Speculators are only reacting to the reality that an attack on Iran would seriously affect supply. Growing demand is a certainty and I agree wholeheartedly with Todd that we must develop alternative energy sources. This should have been done thirty years ago when the alarm went off. Instead we hit the snooze button.



    By Rick G, at 10:27 AM

  • @Rick: The problem is that Iran is doing and saying things that we cannot allow to go unchecked, as a national security issue. For example, when they trained and funded Al Queda terrorists who then killed our soldiers in Iraq. Also, their crystal clear threats against Israel, saying that they will annihilate them.

    It's a catch-22, because Iran is likely doing those things in part to stir the pot. So on one hand we don't want to react to their rantings, but on the other hand we can't do what was done with Saddam and others for too long, and blow them off as hotheads. At this point they actually have the firepower to carry out their threats, and they have already trained people to kill our soldiers and citizens.

    On the alt. energy, hopefully most Americans are coming to that same conclusion. I think the biggest point of disagreement is that there are some who would ONLY focus efforts on the alternative energies, and not address the supply of oil, coal, and nuclear power. Any legitimate energy plan has to address ALL side of the equation, and not treat oil, coal, and nuclear like diseases. Our use of those natural resources fueled this country's greatness, and will continue to do so for at least the next decade, two, or three.

    By Todd, at 3:25 PM

Post a Comment

<< Home