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.
