Who Murdered Cheap Oil?
Reading endlessly about the “crime” of today’s sky-high oil and gas prices while talking heads, politicians, and economic experts assess blame and point fingers reminds me of an old board game I loved to play as a girl.
Remember the mystery game Clue? The object is to become a detective and solve a murder mystery by correctly deducing the murderer, the weapon, and scene of the crime. Through a process of elimination, a player correctly discovers the winning combination and wins the game. Action unfolds in a creaky English manor with intriguing names for suspects and rooms.
“Miss Scarlett did it in the Billiard Room with the lead pipe!”
“No, No! It was Colonel Mustard in the Conservatory with the revolver!”
Fast forward more than a few decades and there’s a new game in town — I’ll euphemistically call it Clue 2 — which involves solving the “energy mystery” of skyrocketing gas prices at the pump. Like Clue, it involves finding the culprit, the “murder” weapon, and scene of the crime. Unlike Clue, there seems to be no end to the possible suspects implicated in the hunt for the guilty perpetrator.
“OPEC did it in the Middle East with the wrench that tightened supplies even as Little Miss Western Demand begged for mercy while groveling at the feet of the Saudis!”
“No, it was India and China with the rope of increased neediness and outlandish carbon emissions in the Asia Room!”
“I think it’s murderous Big Oil with their obscene profits and price-gouging, doing it in the clandestine, mahogany Board Room.”
“Congress and radical environmentalists are doing it in the Lobby with a lethal ban on drilling in ANWR and the continental shelves starting back in 1995 when Clinton ran the show!”
Our eyes glaze over with talk of supply and demand, peak oil, and end of the Oil Age — and with it the rise of King Corn, biofuels, and endless scapegoating. Upon closer examination, however, we see there are many reasons why the price of oil should actually be going down rather than up.
U.S. demand for oil (12,000,000 barrels/day) dropped 1.4% in the first quarter of 2008 from the same quarter last year — the third quarter in a row to see a drop. Big Oil’s so-called “obscene” profits since 2002 are only about 8.1 cents on the dollar in sales — in line with every other U.S. manufacturer except the auto industry. And those profits come before Big Oil paid approximately $138 billion in taxes to the IRS at an effective rate (when additional severance, sales, and user taxes are factored in) of 40%, higher than any other U.S. corporations, which pay on average 35% in federal taxes.
Then there’s the fact of increasing supply: According to recent estimates from the API, “an estimated 4,577 new U.S. oil wells have been completed in the first quarter of 2008, up 12% from 2007, the largest increase since 1986.” In addition, huge new supplies of oil are being discovered off the coast of Brazil, elsewhere in the United States, the Caribbean, and Asia that will greatly contribute to increasing world and U.S. supplies. And finally, world surplus oil production capacity has gone from a very tight 1.5 million barrels per day a couple of years ago to more than 3 million barrels today, said petroleum economist Michael Lynch in March 2008.
All of these realities should be lowering the price of oil today instead of raising it.
With all this in mind, I’d like to propose what I believe is the correct answer — the real culprit lurking in the shadows — of today’s high and rising energy prices:
The Bush White House did it, in the Cabinet Room with 1) the printing press from the Treasury Department that printed far too much money to cover out-of-control government spending after 9/11 and 2) a pair of Federal Reserve scissors that started cutting interest rates from 6% down to 1% in a little less than a year back in 2002, under the tutelage of Alan Greenspan.
Together these two weapons — a printing press and pair of scissors — acted like a double-barrel sawed-off shotgun in annihilating the value of our dollar in short order. The effect was to shrink the buying power of our money while at the same time to increase the value of all hard assets like houses, commodities, gold, and now oil and gas (a commodity traded only in U.S. dollars on the world market) to near unaffordable levels today.
The Bush administration’s motive for this currency crime? To shore up our balance of payments with the rest of the world by helping our exporters in global markets and subtly making it harder for us to buy imported goods from abroad since our money bought less!
Yes, the devalued dollar is the real cause of today’s skyrocketing gas prices and panicked talk of oil scarcity. The devalued dollar started all the commodities bubbles of the 2000s, and investor speculation — futures traders and options contracts — are going to explode it.
Do I hear a second?
It’s a great fundamental truth of free markets that when the value of any currency falls, the value of tangible assets goes up. People start dumping the depreciating currency asset for something they perceive will better hold its value in times of uncertainty. Then the bubbles get formed by investors wanting to make a killing on all kinds of sophisticated trading. It’s what’s happening today.
The dollar started weakening in the early 2000s as the Treasury Department minted new money like there was no tomorrow to cover the burgeoning budget debts of the War on Terror. At nearly the same time Alan Greenspan starting cutting interest rates down to nothing.
Cheap, plentiful, devalued money was everywhere. In addition to printing too much money at Treasury to pay for historically high federal spending in wartime, and continuing to cut interest rates at the Fed, the Federal Reserve also started buying up all our dollar debt, which had the effect of lowering interest rates even more!
Our cash went from being king to pauper, as the Bush White House continued its policy of prosperity through devaluation.
With cheap credit and dwindling dollars, investors large and especially small piled first into housing and started blowing up the now-famous housing bubble. The larger and more sophisticated investors also started buying commodities like steel, copper, and iron ore, taking prices up dramatically over the past three years. Smart money additionally headed for gold, which recently went to record highs of over $1,000/ounce in March 2008 (from $300/ounce three years ago) and is predicted to go to $1,500-$2,000 if the dollar continues to languish at historic lows or fall further.
In this context, is it any wonder that we’re in the middle of a huge spike in oil and gas prices due to the puny dollar? To make things worse, the Big Boys in the world of finance are pushing futures trading in oil and gas to historic highs with no end in sight.
The gas and oil bubble has officially arrived. It’s one of the few things George Soros and I agree on. And there’s nothing we can do about it. Nothing, that is, until the bubble explodes, which it surely will. The only question is when and how much bigger will the bubble get before it blows up in our faces? (And when that happens we’ll see gas prices dropping like a rock and gas supplies and inventory being discovered everywhere, like in the housing market. Overnight the talking heads will no longer be moaning over the scarcity of oil but rather how plentiful it is with its scandalously cheap price per gallon.)
In the process of this dollar devaluation and various commodities bubbles growing and bursting over the past few years, Bush has become one of the most unpopular presidents in modern history, with the exception of two other U.S. presidents who also presided over a falling dollar: Richard Nixon and Jimmy Carter, according to John Tamney of RealClearMarkets. Remember the first oil crisis, long lines, and commodity bubbles of the 70s?
It is safe to say that all other things being equal, a devalued dollar will always lead to an unpopular presidency. And so it is with that of George W. Bush. In the simplest of terms, our money just doesn’t buy what it used to. And we’re not happy campers right now like we were in Ronald Reagan’s and Bill Clinton’s terms, both of whom presided over relatively stable to slightly rising dollar valuations and robust economies.
Any solutions to this now-solved mystery? Is the dollar dead or is there hope of reviving it? Stay tuned, and we’ll play another game of Clue 2.
I only hope because of this dollar mess we won’t be playing pin the tail on the donkey in November.
Yeah, gotta agree with this one. We are expat Americans living in Bulgaria & the dollar sucks. It has lost nearly all of its prestige, not to mention value. Everyone wants Euros, even us.
W really pulled a boner when he started on the devaluation track. Frankly, I don’t thing that the dollar will ever completely recover. The emerging power of the Euro, Russia & now China will keep the buck near the bottom. That is, along w/ continued US gov’t fiscal policy.
I am not fluent on world economy but I think factors such as the Mullahs of Iran now selling their oil, all 4.2 million bpd of it, in Euros must have some effect. This I believe has strengthened Euro against Dollar and Pound. The second factor I believe has to do with Dollar devaluation is the terrorists are in possession of very large sums of American Dollars, effectively taking the money out of the legal market and placing it in the black market. This may have forced the American treasury to print more Dollars, which contributes to further devaluation of Dollar. The solution: The American treasury should be replacing all Dollar Bills with new designs. This would make the ones kept under the mattress useless as it would re-energise and strengthen the Dollar. But what about the Iranians Mullahs dealing their oil in Euros? Any ideas how to solve that?
When your “facts” are false, your conclusion becomes invalid.
To whit, you are confusing your data:
Your statements: “U.S. demand for oil (12,000,000 barrels/day) dropped 1.4% in the first quarter of 2008 from the same quarter last year” and “And finally, world surplus oil production capacity has gone from a very tight 1.5 million barrels per day a couple of years ago to more than 3 million barrels today, said petroleum economist Michael Lynch in March 2008″ are not necessarily speaking of the same thing. In other words, your first statement about consumption is probably about Crude and Condensate (though your “data” is suspect) , while Lynch (assuming he is even correct – did he give you sufficient proof?) will be referring to a broader category of products (probably including NGPL, and maybe other kinds of liquids.) Yet again, even if Lynch is claiming to be speaking of purely C&C, did he give you any proof?
This is important because not all liquids end up in the same products (e.g., gasoline), and not all liquids are equally desirable. The extra heavy or low quality oil that is now available may be undesirable to the refiners. Furthermore, it may be from sources, namely Iran, from which you would disallow purchase.
Also, your “12,000,000″ figure is misleading as the all liquids consumption by the US over 2007 averaged 20.7 million barrels per day, per the EIA (http://www.eia.doe.gov/emeu/steo/pub/contents.html) and the expected 2008 daily consumption is estimated to drop 190,000 barrels, which is less than a 1% drop. Whoopee!
Secondly, I notice you no where include the estimated world demand figures from the EIA and IEA, which have consistently shown growing world wide demand. Given oil and other liquids are traded internationally, is there a reason you are skipping such an obviously important idea of international demand outgrowing international supply?
Thirdly, you have a strange idea as to what increased production means. You said ” According to recent estimates from the API,’an estimated 4,577 new U.S. oil wells have been completed in the first quarter of 2008, up 12% from 2007, the largest increase since 1986.’ ” Well, that is nice, but I buy liquids by the gallon (being in the US), not by the well. You do realize that the oil industry has to continually drill wells to make up for depletion in old wells, don’t you? What matters is the final production, not the number of wells drilled. If US production does go up this year it will be by a very modest amount later in the year, as up to four large platforms in the Gulf of Mexico come online. Yet again though, the increase in production will be pretty small compared to world demand.
Your whole essay is written to get to the punch lines that: (1) the Fed is causing cheap money to drive a bubble, and (2) “I only hope … we won’t be playing pin the tail on the donkey in November” meaning you don’t want Obama to win in November.
While I do not doubt that the cheaper money from the Fed will contribute to inflation and drive up all commodities somewhat, you have failed to show that the Fed actions are driving the oil price. Professor Hamilton at UCSD has been research this topic, recommend you visit his website http://www.econbrowser.com/ .
As for not wanting Obama to win in the fall, well, that may be all fine and good but your “facts” and analysis have failed to supply any support for this. Indeed, Bernanke is a Bush appointee, is he not?
Finally, as for oil prices coming down – they probably will. Then go back up again, then down, ad naseum. That is what commodities do, they change in price. However, the rise in oil prices has been sustained now over a few years now, started before the recent deep rate cuts by the Fed, and that suggests indeed something more fundamental is going on.
“As for not wanting Obama to win in the fall, well, that may be all fine and good but your “facts” and analysis have failed to supply any support for this.”
The present situation is bad enough. Why make it worse? We already know that Obama is either a liar—or a fervent socialist. This man worries the Canadians and a number of our other trading partners. His economic positions on free trade and unfairly taxing energy companies are all the evidence we require to arrive at the logical position that he should not be elected the next president of the United States.
An interesting read is from 1999 when Steve Layton, President and CEO of Equinox Oil testified about *low* oil prices and what was causing them and the reason why the price was going that low. He testified before Congress as part of the Independent Petroleum Association of America, also known as ‘the little guys’ the small domestic production concerns in the US. If we can’t be bothered to listen to them and their concerns during low oil prices and what was happening to the market at that point then why, praytell, should we listen to anyone today who complains about high oil prices when they were part of the outcome of what was happening during low oil prices and ignored the warnings?
The larger, transnational firms can adjust to any national legislation and utilize caps, limits, taxes and such on domestic firms to undermine them because of the very size differences between the transnationals and the domestic firms. So every time we hear about regulation on the oil industry or attempts to garner ‘windfall profits taxes’ that is directly targeted at the small producers and their ability to operate in the marketplace. It is these very same producers that get the US the bulk of its oil, in case that has been forgotten. But this requires looking at the global marketplace and the domestic marketplace, realizing the limits of what can be done via legislation and deciding if we are going to help our own oil industries or *not*. If you want to stop Exxon/Mobil and its transnational brethren from getting larger by gobbling up small domestic concerns failing due to regulations our government imposes, then that solution is one that must look to ourselves, *first*. It always sounds so nice to target Big Oil, but the bullets usually go through the hard working small producers and independents in the US *first*.
Dear Ms. Whitson:
First, a great article but their is a huge error in it. The U.S. daily demand for oil is not 12,000,000 but nearly 21 MMBOPD. The April 8, 2008 number was 20.114 MMBOPD which you can find on the web. I would recommend correcting this.
Second, another major event that you have left out is the demand coming from India and China. These two countries, with 40% of the world’s population, have now begun to use gasoline in huge volumes. A few years ago, it was 7 MMBOPD, it is now up to 12 MMBOPD and will soon rise to 20 MMBOPD, put increasing price pressure on crude oil. The U.S. uses 45% of the world’s gasline so don’t expect prices to really come down until either supply is increased [which G. Bush had to beg for from the Saudi's] or the dollar’s value is enhanced, as you noted above. Until our Demorcrat congress men and women begin to understand supply and demand fundamentals, we’ll continue to have high prices and price spikes.
Third, we need to get speculators out of the market as well. At least 25% of the price impact has come from pure speculation. Wall Street traders are profiting without creating a single barrel of oil or mcf of natural gas. This has to be managed in a much different fashion. Speculation is Clue 3.
Lastly, Windfall Profits Taxes won’t work since it will not add a single barrel to supply. All it will do is provide our government leaders with another pot of money to waste. They certainly won’t use it to drill for oil and gas. If you don’t believe that, check out the Entitlement Debt [$54-74 Trillion], National Debt [$9 Trillion], Balance of Payments Deficit [$3 Trillion] and Interest on Debt of $490 Billion per year. If you feel our government is going to use your money wisely, send some more in!
P.S. For those that don’t know by now, Corporations do not pay taxes, they collect taxes. The real burden will be on us as individuals. See Fair Tax.org for a clear understanding on this.
Speculators are moot if there’s ample supply. Speculators can’t drive up the price of a glutted commodity. Conversely, if there isn’t enough of the commodity to go around, speculation is inevitable. Speculators are part of the mechanism, not a root cause.
You’re barking up the wrong tree. Keeping ANWAR and continental shelf oil off the market has done more to create this situation than anything the fed has done, and in the short run, about the only thing that we can to to alter the reality is to open up and let them drill.
I completely agree with freetoken, btw. You really mangled the facts.
Interesting take. The dollar certainly has an effect on the price of oil but it isn’t the entire cause, imo. Freetoken makes valid points about demand and production. Demand is through the roof and production isn’t keeping up.
China and India are attempting to bring a billion people each, give or take, into the middle class. This creates tremendous pressure on supply. Note too, the Chinese currency is still pegged to the dollar. If the dollar were the sole culprit for higher oil, I have no doubt the Chinese would abandon it as their peg. Granted, that’s complicated but also action one would expect if the dollar were singularly responsible for higher oil.
Supply is effectively controlled by a few nations and OPEC. Most of those nations are less than friendly if not downright hostile to the US. They are also realizing, correctly I think, that they’re reaching their own limits on production while technology is advancing rapidly to make oil less and less important in coming decades. They may only have ten or twenty years to extract maximum profit from the world.
Supply is also constrained in the US Congress. We could and should drill ANWR and the continental shelf. We should be building nuke power plants and clean coal plants. We shouldn’t be converting food into fuel etc. In each of these cases, we’re doing the exact opposite of what’s in our self interest and effectively strangling ourselves in the process.
As to our fiscal problems, they certainly exist but are blown out of proportion. I don’t think we’re in any worse shape than most of the European nations when it comes to unfunded mandates. If the Euro deficits are smaller than ours, it’s primarily a result of Europe not spending on defense. The Euro is overvalued, much as the dollar was circa 1999-2000. And Europe is paying a price for an overvalued currency in the form of slow/no growth. This imbalance will correct.
When compared to the yen, the dollar was much weaker as recently as the mid-90′s. The Euro wasn’t in existence at that time but the mark and the franc were also pretty strong back then relative to the dollar.
To summarize, a weak dollar is responsible, but only partially, for the high price of energy. Supply-demand constraints are playing havoc as is the lack of any political courage to do the obvious and tap our own supplies.
A better strategy for the late 1990s would have been to set monetary policy to address the fall in the price of gold – which was signaling deflation – and make it clear that
policymakers understood the strategy would lead to either a decline in the value of the dollar or slower appreciation in the dollar. Such a policy could have killed three birds with
one stone: weakening a then super-strong dollar, diminishing speculative fervor and avoiding deflation. If that had happened, the Fed would never have cut interest rates to 1%, and the “housing bubble” would have been avoided. Commodity prices today would also be much lower and the dollar would be stronger.
But this is where all this turns almost surreal. …The Fed itself causes bubbles by not adhering to a single mandate – price stability.
http://www.ftportfolios.com/Commentary/EconomicResearch/2008/5/27/bubble_trouble
The chick was hatched in the 90′s under Greenspan, grows under Banarke, and has just come home to roost. It’s less a Bush’s creature than the Fed chairmen’s pet. Since we can’t do anything about the Chairmen, we have to blame Bush.
Who murdered cheap oil?
The West, the inventors of all the technology which uses this wonderful resource.
How is that, you say?
We have spent the last 60 years lavishing aid, medicine, food, and technology on the most primitive, barbaric, and incompetent societies on earth allowing their populations to soar to the stratosphere… Even now, we continue to aid those and promote out-of-control births among those who cannot even figure out how to feed and care for themselves. We even send staggering amounts of aid to our avowed enemies like those across the Muslim world in places like Pakistan, Indonesia, Egypt, not to mention Iraq and Afghanistan.
All those billions of people now want their cars, their TV, and all the goodies which the West invents — mimicking our behavior as consumers without embracing our culture of inventiveness, freedom, and intellectual endeavor.
It is crazy that in all the discussions about global warming and oil shortages that nobody discusses the elephant in the room — overpopulation. We have been foolish in our supposed generosity — so much so that today we have fostered a looming catastrophe which threatens to destroy the planet, and all our good works in the process.
Regardless of the mangling of a few facts, a brilliantly written piece. Glad to finally see you give some credit to Bill Clinton and acknowledgement of George Bush as a complete doofus.
Bernanke could do what Goldspan did at first and try to target some price for gold (or some other stable commodity). Raise interest rates until the price of gold settles somewhere between $250-350. That’d remove the weak dollar as a cause of expensive oil. I’d rather deal with the eco-luddites at the same time, but if not they can be handled after.
The short answer is that we are being hosed. The longer answer is that there is a larger list of suspects: Speculators, OPEC, Russian OPEC,Govt. regulations and officials, Big Oil, terrorist threats, extreme enviromentalists, and the consumer.
I tend to look at the speculators building commodity pyramids and driving the news as the prime suspect. They could put their trillions into something useful like nuclear energy. Money is usually the motive.
A lack of an energy policy is decades old and those clues and culprits go to congress. Maybe this crisis will not be obfuscated in the bipartisan blame game.
“Then there’s the fact of increasing supply: According to recent estimates from the API, “an estimated 4,577 new U.S. oil wells have been completed in the first quarter of 2008, up 12% from 2007, the largest increase since 1986.” In addition, huge new supplies of oil are being discovered off the coast of Brazil, elsewhere in the United States, the Caribbean, and Asia that will greatly contribute to increasing world and U.S. supplies. And finally, world surplus oil production capacity has gone from a very tight 1.5 million barrels per day a couple of years ago to more than 3 million barrels today, said petroleum economist Michael Lynch in March 2008.”
While yes the devaluing of the dollar has had an effect on oil/gas prices this is a bit miss leading. Investor speculation has really been the driving point for years now… first the “terror tax”/supply tax etc… which still hasn’t lifted. We now have “global warming taxes” popping up all across the western world added to that global warming fear mongering and the global warming crusade/anti-oil crusade. While many of these thing have had very little direct market effect they have heavily effected one area… speculation… every time a bomb goes off, a global warming nuts speaks you can map that to rising prices. The reason prices have “slowed” recently is the investor speculators have pretty much fear mongered the market as far as they can at the speed they were able to and thus in turn max out the “fear mongering” “taxes”. I would expect as things settle in iraq/mideast(at least from the speculators point of view because iraq and the middle east could explode but as long as the speculators thinks its all good the price will go down at least in the short term), global warming myth is busted, and mass drilling for oil(or at least saying their will be mass drilling) will in the short term reduce prices(or more reduce the fear taxes).
“According to recent estimates from the API, “an estimated 4,577 new U.S. oil wells have been completed in the first quarter of 2008, up 12% from 2007, the largest increase since 1986.” In addition, huge new supplies of oil are being discovered off the coast of Brazil, elsewhere in the United States, the Caribbean, and Asia that will greatly contribute to increasing world and U.S. supplies. And finally, world surplus oil production capacity has gone from a very tight 1.5 million barrels per day a couple of years ago to more than 3 million barrels today, said petroleum economist Michael Lynch in March 2008.”
The production in oil fields declines over time, so we need new wells to replace production decline in existing wells. While 4,577 new wells seems like a lot, it tells us nothing about the QUALITY of those wells. Speaking form experience, I participated in the drilling of 2 “new” wells last year. One has not yet gone on production and the other produces about3 barrels of oil a day. We hope to get it up to 10 eventually. Thats about 3500 barrels a year in a world economy that uses 80 million barrels a DAY. Not exactly the kind of thing to drive prices down.
Internationally, only Brazil has found reserves that will have any significant impact on prices. These wells cost about $10,000,000 each to complete and will require multiple platforms in 5000′ deep water. These will cost in excess of $1 billion dollars each, along with an undersea pipeline that will coast hundreds of millions of dollars. Don’t count on Brazil selling this oil cheaply!
It is not current supply versus current demand that is driving price. There are countries in the world that have time horizons that exceed 15 minutes. China lacks oil potential. For all their failings, the Chinese politicians take a long view and are looking to secure resources for the next 50 years, through both political and military means. Likewise the Saudis realize that maximizing the life of their fields is in their best political interests. Yes they can produce more, but why should they? Almost no one can increase production significantly. Pemex (Mexico) is utterly incompetent. Production declined over 6% last year alone. There is no hope whatsoever that Mexico, or Venezuela have the ability to increase production. The province of Alberta killed the golden goose of tar sands by retroactively changing the terms of leases. No Shell and others have abandoned any new projects in Canada.
I offer a simple test.
If lowering value of dollar was reducing its purchasing power and thus increasing oil prices, then countries using currencies with rising values and rising purchasing power should see their oil prices drop. However, oil is rising in dollars, euros, or dinar.
Might we mention refinery capacity? After reading this article and skimming the previous comments, I am curious as to why so many tedious economic facts and statistics were thrown about without anyone mentioning that increased crude oil production will have NO effect on gas prices if the US does not build more refineries.
This article provides an okay explanation, but let’s not forget another recent Pajamas article that totally didn’t get – yup, I’m talking about Time to Push the Saudis on Oil Prices, by Youssef Ibrahim (3/19/08, http://pajamasmedia.com/blog/time_to_twist_saudi_arms_on_oi/):
Mr. Cheney is uniquely positioned to remind King Abdullah that he was defense secretary when George Bush Sr. mobilized 400,000 U.S. troops to save the Saudis’ hide from Saddam Hussein’s claws, when having taken Kuwait in 1990 he was getting ready to swallow Saudi Arabia.
The Saudis have to come clean. Do they prefer hogging billions of dollars without regard to the consequences or do they want to play a responsible role on the world stage? They cannot have it both ways. The same applies to Kuwait, whom the U.S. rescued in 1991, and the UAE, which lives under U.S. defense wings. We need the extra oil — now.
Put ever more simply: we can cut that oil price in half, literally, with a mere statement of intention by these allies that more oil shall be disgorged onto world markets this year. When the oil moves onto tankers, we will be looking at $40 a barrel, or substantially less.
Ken is correct. The price of OIL is going up because of a little thing called “Supply and Demand”. I know you socialists don’t believe in ‘supply and demand’, which is OK, since your belief structure has no effect on the real world.
You can look for a villain and give it a name, that won’t change the facts. Those facts are that more humans are buying products made from OIL (Organic Industrial Lubricant). That increases the demand for OIL and since the supply is limited, the price will go up.
If that is a problem to you, find a nice cave and buy a horse.
The party is over. Cheap OIL is running out, there is NO substitute for OIL in the near future ( next century or so), so either you pay the price or do without, which is where the cave and horse come in.
In South Korea filling up an empty tank can run up to 100 US dollars. In Taiwan gas is reportedly 9 bucks a gallon. And surprise, none of those countries produce much (if any) oil. It helps that their public trasporation (especially subways) is a bit more reliable compared to America. Most Aisans can live without a car. just Americans, but all of the globe. Why NOT drill at ANWAR, or whatever it’s called? As long as the environmental damages are negligilbe?
I’ve read opinions that drilling at ANWAR (specifically pipelines) is unlikely to kill many caribous or significantly damage the environment. Why not drill there to produce more oil? Our politicians do a fine job grilling oil company CEOS in some congressional hearing, but most of us know that’s not actually going to lower prices.
Author’s note: This article is about supply and demand of the U.S. dollar and the effect that supply and demand has on hard assets, especially and currently here on oil and gas.
None of this is meant to deny the need for new U.S. refining capacity, or finding additional domestic sources of oil and gas say in ANWR and other parts of the Continental Shelf, or developing energy alternatives and promoting conservation. It is further not meant to deny growing demand in Asia and other parts of the world that are triggering tighter margins and pushing up prices.
But the underlying theme here stands: it’s all about the dollar, stupid.
Yes, Jane, the USD value is a huge driver of the cost.
A graph of oil prices, in Euro, would show this clearly — there’s been an increase, but it’s not huge. But prices have long been 1 Euro or so per liter (about a quart).
The current devaluation / inflation can’t stop until house prices stabilize — the last year’s worth of inflation is an attempt to save … Big Money Banks from their lousy sub prime mortages, so the $500 000 houses “worth” only $400 000 will avoid the owner walking away when inflation makes yesterday’s 400k equal to tomorrows 500k.
Don’t expect, nor ask, for a stronger USD until the foreclosure rate declines.
In the meantime, Go Nuclear! and drill off ANWR. And blame the Democrats for being against all alternatives, like Teddy K was against wind power (In His Back Yard).
Why is it that the media never seems to mention the obvious connection between the weak dollar and high gas prices? Another record low dollar, another record per barrel. Ditto for gold. Get it?
There’s a whole big world out there west of Hawaii. They are not necessarily paying what we are.
Oh, it’s an election year. Never mind.
We can either maintain the current refining capacity, or expand it.
The first route will see
continued price increases for anything transported (whether it be zucchini’s or shoes).
The second route will see a moderating of price increases.
Have to disagree on both points; inflation is not “targeted” to one particular commodity; inflation is arise in the overall price level; second, the chairman of the Federal reserve is not a member of the Executive cabinet and does not take orders from the Executive.
All of the other items you mentioned as possible contributing causes are just that, each doing its part.
Your comment that the price of oil should be going down is probably a good prediction. It is akin to the law of gravity that when the price of a commodity goes (way) up the supply increases causing the price to go down.
Jane, A most interesting post, as always. I am sure you are right. One thing I was expecting you to do was to talk about the power of the enviros in the Democratic party, and the fact that they have made it impossible or very difficult to explore oil reserves available in our own country.
Who murdered cheap oil? The same people that executed Saddam Hussein.
Who murdered cheap oil? Most possibly the people that executed Saddam Hussein.
Who killed cheap oil? The same people that executed Saddam Hussein.
I think those are definite factors, but you missed the 3rd and dominate factor – the speculators. There is a “dark market” investigation going on right now. Search for “Dark Market ICE” and read up. This is a big deal!
freetoken: Hear, hear!
The Federal Reserve System must be abolished. They have no constitutional authority to exist in the first place. By devaluing our currency they put America on the fast track towards depression. The Fed meets in secret and has no oversight; as we talk about the need for more regulation in the financial sector to prevent fraudulent loans to be issued, the oversight should start at the top with the Federal Reserve disclosing all of their otherwise private details to the public. The Federal Reserve is a private corporate banking cartel made up of wealthy international bankers. The Federal Reserve is as “federal” as Federal Express. Because they are a private entity, they are the ones to benefit when money is borrowed from them every time they issue dollars America, which they print out of thin air on worthless paper. It costs just as much for the Fed to print a $100 bill as it does to print a $1 bill. It is advantageous for the Fed if the nation is put into a situation where it is forced to borrow as much money as possible. In this regard, war is by far the best situation for a nation to be in, and I am sure the private bankers of the Fed could not be happier that our deficit is in the trillions because of the wars we are engaged in. Who benefits from war? The Federal Reserve does, as it loans our own money to us at interest. This interest is paid in the form of the Income Tax, which is illegal as the income tax is a un-apportioned tax that cannot be levied upon people for their labor. Yet all of the money we make four months out of the year goes to pay the Income Tax. By so doing, the Federal Reserve has enslaved the American people, while they plunge us deeper and deeper into debt by making sure wars are sustained for as long as possible, and the currency becomes more and more worthless, and our homes are foreclosed upon to make us homeless upon the land our fathers conquered, just as Thomas Jefferson predicted would happen if we would ever allow private banking institutions to control the issue of our currency. The Federal Reserve is a sick and disgusting entity that must be abolished for good.