Obama Is Obloviating About the Oil Price
In an essay today for the new Gatestone Institute, I shred President Obama’s claim that strategic tensions in the Middle East are to blame for higher oil prices. In fact, his administration is to blame, for suppressing drilling and shale development in North America.
“Right now the key thing that is driving higher gas prices is actually the world’s oil markets and uncertainty about what’s going on in Iran and the Middle East, and that’s adding a $20 or $30 premium to oil prices,” President Obama said March 23. It’s complete and utter nonsense. Oil is trading in lockstep with expectations for economic growth, as reflected in stock prices. There’s not a shred of evidence that geopolitical uncertainty has added a penny to the oil price. Obama’s $20 to $30 per barrel risk premium is a number pulled out of a hat, without a shred of empirical support. In effect, the President is blaming Israel for high oil prices.
On April, 3, Vice-President Biden blamed higher oil prices on “talk about war with Iran”; fear that Iran might “take out the Saudi oil fields and Bahraini oil fields”; the Arab Spring movement; “war in Libya”; the rise of the Muslim Brotherhood; and a potential for unforeseen political unrest, such as “chaos in Russia.” It’s all complete and utter nonsense. Oil prices are going up because the world economy is consuming more oil and supply has not increased to meet the demand – in part because the Obama administration discourages North American energy development, most recently by stopping the proposed Keystone pipeline from Canada. It’s easier to blame foreign phantoms for high gas prices at the pump than the administration’s business-killing politics
One might argue that the market should price strategic risk into the oil price, but the fact is that markets are not especially good at assigning prices to possible events whose probability can’t be measured.
Chart 1: Oil Price vs. S&P 500, Past Three Years
Source: Bloomberg
During the past three years, oil prices have tracked equity prices almost perfectly, with a regression coefficient of nearly 90%. (For statisticians, the correlation of daily percentage changes in the two markets is 51%). Equity prices embody expectations of future economic growth, and higher growth means more demand for oil. If oil supply cannot keep up with demand—because the Obama administration has restricted development, among other factors—the oil price goes up.
Read it all here. One might add that if it were the case (and I think it eventually will be the case) that strategic tension drives up the oil price, it would also be Obama’s fault, because American strategic withdrawal exacerbates such tensions.
Chag Pesach Samayach/Happy Passover to Spengler and Happy Easter, Passover or “have a nice day” to Spengler readers.
Aren’t both the S&P and commodities driven by money printing?
Is real demand rising in the face of demographic decline and inflationary policy?
Or is the developing world catching up to the First world?
We’ll see. After Friday’s employment report, I don’t think anyone can fool themselves that the domestic economy will keep chugging along. You’d think that growth in India and China must at least slow here. So it would be reasonable to expect at least some hesitation in the indices. If monetary aggregates continue soaring but the S&P doesn’t, then stocks aren’t responding to monetary stimulus.
But perhaps our good host will disagree with me.
“In effect, the President is blaming Israel for high oil prices.”
Deft. Now I see it. Well done!
July 4, 2008 $145.29
December 26, 2008 $37.71
Precieved supply and demand may caused bad perception. Or the other way around.
David — happy upcoming Passover to you and yours, and congratulations on the new gig, whatever the Gatestone Institute is…I’ll look it up. A blessed Good Friday to Spengler’s Catholic/Protestant readers and a contemplative Palm Sunday/start of the Holy Week for the Russian and Serbian Orthodox this weekend.
Happy Passover and Easter to Jews and Christians, respectively.
Gatestone isn’t a gig; it’s a conservative foundation run by people I respect (Jim Woolsey is the chairman of the board) and to which I’m happy to contribute.
“Gatestone isn’t a gig; it’s a conservative foundation run by people I respect (Jim Woolsey is the chairman of the board) and to which I’m happy to contribute.”
I think he just meant you have a legacy across the web and so many different institutions. Gatestone does look to have a good crowd.
Re: Gatestone/Woolsey! Excellent! You should send Jim a copy of “Putin for President” on Victory Day/May 9th.
Nonsense! Bibi is warmongering for the EXPLICIT purpose of driving up oil prices which has the benefit of hurting Obama in the election which will hopefully be appreciated if we get a republican president. It also helps his drinking buddy Russian Emperor Vlad the (Muslim) Impaler whose existence is sustained by high oil prices. Oil prices r already manipulated by the PERFECT SCAM that is Peak Oil. Warmongering boosts the price.
Peak Oil is the greatest scam ever. U can appeal to the environmental nut jobs AND the oil industry at the same time. Oil industry loves peak oil. It’s the best excuse for high oil prices. And of course the environMENTALISTS love the idea too. They love anything that helps spread poverty
“Nonsense! Bibi is warmongering for the EXPLICIT purpose of driving up oil prices which has the benefit of hurting Obama in the election which will hopefully be appreciated if we get a republican president. It also helps his drinking buddy Russian Emperor Vlad the (Muslim) Impaler whose existence is sustained by high oil prices.”
T — while Senor Equis is second to none when it comes to opining about the hidden, don’t-you-dare-tell-Jim-Woolsey-or-Frank-Gaffney-about-it ‘affair’ going on between Jerusalem and Moscow between the sheets, I’m afraid it’s still a stretch to describe Bibi and Vladimir Vladimirovich as ‘drinking buddies’. Israeli Veep Avigdor Lieberman and Lavrov? Maybe, except Lavrov doesn’t drink.
At any rate, as Spengler and every Zerohedge reader knows, the CVNs have been pulled back from close proximity to the Persian Gulf — which means we can likely reset our Iran war clocks until after Christmas 2012. I have some off-line intel confirming as much too which I won’t disclose. That means what’s left on the fight card for 2012 is probably Syria, which on paper shouldn’t have anything to do with oil prices whatsover but is just another excuse as you said to jack them up. But the neocons and Saudis have a problem in that…
A) they’re not supposed to get in bed together or haven’t successfully done the deed against a common enemy since Reagan’s alliance with the House of Saud against the Soviets in the 1980s. That worked, but we got the Taliban. But as old Z. Bzerzinski said (and I’m paraphrasing) in his infamous interview with a French paper where he bragged about luring the Soviet Bear into the Afghan trap in 79′ “what’s a few fanatics compared to the end of Communism?”
B) Putin has drawn a line in the sand in Syria after the neocons/Obamanites humiliated Medvedev in Libya. The Syrian ‘rebels’ are apparently getting their butts handed to them on the urban battle fields of Homs and the suburbs of Damascus — probably thanks to help from Russian spetsnaz advisors and lotsa Russian/Chinese guns. The rebels only survive or can openly move within sight of their supply lines from the Turkish and Jordanian borders. The UK media’s announcement that the Brits were placing the Syrian opposition leaders on salaries is a telltale sign. You don’t put people on salary if they can make the big bucks on commission, see Glengarry Glenn Ross or expect a short conflict.
C) Option C of Bashir Assad stepping down for int’lly supervised elections and retiring to an old folks home for dictators in Belarus far away from the ICC’s clutches, while preventing the slaughter of Allawites and Christians by Saudi-funded Sunni radicals, is probably what’s best for everyone. Too bad Obama’s diplomats including the pompous McFaul seem far too into themselves to pull off such a deal with the Kremlin and Chinese.
And I do agree with you about Peak Oil theory being largely rubbish, though it has often been confused and conflated with ‘the end of cheap oil’, which is more a matter of geopolitics (i.e. KSA far more than Russia which has gold/timber/gas /grain to fall back on needing $80/barrel floor).
I met one petroleum geologist once who advocated for POT, and asked him point blank at a restaurant where we were sitting in 2008 why he wasn’t already at that point stockpiling food and ammo at an undisclosed country location to prepare for the collapse of suburban/exurban civilization as we knew it. His unconvincing reply that he had a country place but hadn’t stocked it yet didn’t strike me as serious, given that he’d been making six figures as an oil industry exec for years.
A few weeks later, I talked to a former senior exec at Chevron who helped run their Russia drilling in existing Soviet-era fields in the 1990s. He told me eastern Siberia remains mostly untouched, along with the Arctic offshore. All of those places of course, being far more expensive to drill in than North Dakota, Ohio, Kansas or even Ft. McMurray, Alberta. But for now, even if lotsa countries in Europe make the multi-100 million dollar investments in LNG terminals, Gazprom can always just put more resources into Gazpromneft.
I think the Russian theory of abiotic oil formation has a huge amount of evidence going for it, particularly now that Petrobras and the deep offshore Gulf of Mexico are drilling deeper along the Continental shelf than contemporary geologic theory say there’s any traces of trolobites or other primitive fossils/plant life beds. Look at Saturn’s moon Titan which is a sea of hydrocarbons and was the original (refueling) destination for Arthur C. Clarke’s crew in 2001: A Space Odyssey before it all got changed from Saturn to Jupiter for the 1960s movie.
End of thread for me.
But for now, even if lotsa countries in Europe make the multi-100 million dollar investments in LNG terminals….
I’ve read, although not in any particularly reliable sources as I recall, that Western Europe has plenty of shale gas formations amenable to fracking.