No, the oil produced in
the U.S. will end up on
the world market, then
it will be at the mercy
of speculators and the
U.S. dollar to determine
its price, then it will
be bought by refinery
plants at the going
rate. That is the system
we have allowed to
evolve. The supply side
would have a negligible
effect on the world
price of oil because of
the absurd prospect of
our government
implementing something
so simple as this, and
done at a high enough
volume to have a more
than token effect on the
market. The speculators
have already shown what
they will do with a
modest increase in
supply anyway. Saudi
Arabia announced that it
would increase
production by 300,000
barrels per day with an
additional 200,000 to be
added later. This would,
in a free market, be the
perfect scenario to
drive the price of oil
down. But the
speculators disregarded
the increase in supply
and they drove the price
of oil up after the
announcement. So much
for a free market.
Consider also that the
world consumes
approximately 90 million
barrels of oil per day,
but the speculator
markets are trading in
excess of a billion
barrels per day. Free
trade works off of a
balance: too much
product, lower prices,
too little product,
higher prices. Again,
the oil market
is not a free market.
Another way speculators
inflate oil prices is
when they short trade
oil by betting on the
price to fall, and when
the prices actually
rise, the speculators
are forced to cover
their positions. This
drives the price of oil
up. It's a no win
situation with
speculators in the
market.
Economically, the price
of a barrel of oil is
trading at double the
price the free market
equation would dictate.
There is only one part
of the economic equation
that cannot justify, but
can explain, why oil is
$150 per barrel rather
than $70. That is the
speculation part of the
equation. |
| The second scenario in
which the dollar plays into
the equation, and has an
effect on the free market is
as follows: When
the dollar, which is also
speculated on, starts
dropping in value against
other currencies, especially
the Euro, speculators will
short the dollar and buy oil
futures long.
When capital floods into a
market at this high of a
rate, it drive the price
artificially up--then that
same oil has to be purchased
with a very weak dollar.
What does the free market
dictate that the price of
oil should be? Between
$70-$80 per barrel,
currently. OPEC countries
will speak about the causes
of high oil prices, but
never will they try and
justify the prices. You will
not hear OPEC defend the
global price of a barrel of
oil. They cannot, because it
is indefensible, and they
are not responsible for the
price. They control the
majority of the supply side,
but have not cut production
to drive the price to its
current level, nor have they
refused to keep up with
demand. There has not been
any credible evidence, other
than conjecture, that demand
is out weighing supply by a
large enough margin to
justify the price of oil
being over $70-$80 per
barrel. Other than
increasing production by
10%-25%, or decreasing
productions by as much,
OPEC has no
control over the oil prices.
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The trouble with speculators,
other than taking oil off the free market, and doubling its
value on the market, is that they can do this with as little
as a 5% investment. Fifteen million dollars of oil can be
controlled with $750,000. The speculator never takes
possession of the oil, doesn't use it, and only trades
pieces of paper for 5% of the oil's value. In 2007,
when oil was $60 per barrel, speculators owned around
35% of oil, and all end users owned the rest. Today,
speculators own over 70% of oil, and the end users own less
than 30%. This incontestably summarizes why oil is trading
around $150 per barrel, and thusly is poised to have a
devastating effect on the world economy. The prospect will
only get worse as long as oil is allowed to be priced on
speculation.Ed Forman had a quote that sums
up what would be OPEC's worst nightmare: We change when
the pain to change is less than the pain to remain as we
are.
Has the world crossed the threshold of pain to change?
Oil prices that are sustained at the current prices are
something that OPEC would rather not see perpetuated.
Saudi Arabian Oil Minister Ali al-Nuaimi stated,
"We are concerned about high prices. The market has no
shortage of physical crude." Each county has a
vested interest in reasonable oil prices and subsequently
cheaper gasoline prices. Alternative sources of energy are
starting to achieve the type of momentum that is sustainable
and will only pick up speed and garner a solid foot hold, if
oil prices stay at their current levels. The consequences of
a mass produced, viable alternative energy source would be a
dramatic drop in demand for oil, and the subsequent drop in
the price per barrel. Once enough capital, energy, and
success have been demonstrated in alternate energy sources,
the process will not be reversed, and OPEC is acutely aware
of this.
What is the
solution? Drilling is not the answer, it is merely a
band-aid for the underlying problem of the
need for an alternative to oil for sustainable and
affordable energy, but drilling is necessary for the very
short term. We need to drill where oil is available, but
only with a relatively short duration of time. Drilling is
the typical way for the government to address the symptoms
rather than the problems: weak dollar, out of control
speculation, and an anemic attempt at a non petroleum source
of energy. The control of oil speculation is imperative to
the short term mitigation of the financial havoc high oil
prices are having on the world economy. If speculators are
going to continue to invest in oil futures, then raise the
actual cash investment from a nominal 5% to a true
investment of 100%. To phrase it with colloquial flair--they
need to have some skin in the game. This would have to
be a concerted effort of the countries that regulate the
exchanges for oil futures, as not all of them are regulated
within the U.S. If this is not plausible, and is met with
overwhelming resistance from speculators and exchanges, then
flood the market with oil.
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There is almost, worldwide, two billion barrels of oil in
strategic reserves, with the U. S. having 750 million
barrels stored. If the speculators cannot be reined in, then
flood the market with oil from the reserves, and bankrupt
the speculators. This will shock oil back into a free
market. It would work on the same principle as rebooting a
computer--by rebooting, hopefully most of the bugs are
eliminated and it will run smoothly, on its own.
The value of the dollar must be increased.
This must be done by systematically contracting the
supply of dollars, and decreasing the National debt.
There would be consequences to this, but done in a
methodical method, and over a determined period of time, it
can be achieved. This would take the commitment of
politicians over a period of time to make some unpopular
decisions. One of the most biggest mistakes in
the Bush administration was his unwillingness to balance the
budget and attempt to eradicate the bloating national debt
with what should have been surplus revenues,
his tax cuts provided, and the vetoing of out of control
spending by Congress.
If the above methods were applied to some degree and oil
again drops to under $100 per barrel, and a deep breath is
taken, the tendency of the U.S has always been to relax its
ambitious quest for alternative energy. This must not be
allowed to happen--because cheap gas leads to more
consumption--and the cycle starts over again. The pursuit of
alternative energy should be pushed until it gains enough
momentum to cross the threshold of consummation.
http://www.theconservativevoice.com/article/33265.html
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Drilling is not the issue.
