Why are oil prices so astronomically high?
None of this makes any sense. While all the econ 101 rules of supply and demand apply to the oil biz this current market is defying explanation - and something has got to give. Currently there is no actual shortage on the supply side. Demand has actually fallen a bit in recent months. Inventories are good and there has been no major interruptions in refining capacity.
In today's Washington Post this Steven Mufson article "Oil Price Defies Easy Calculation" is actually quite startling as these quotes demonstrate:
If consumers are baffled by the rising prices, so are many oil experts. "The fundamentals are no problem," Jeroen van der Veer, chief executive of Royal Dutch Shell, said in a recent interview. "They are the same as they were when oil was selling for $60 a barrel, which is in itself quite a unique phenomenon." He blamed the lack of spare oil production and refining capacity, and tensions in the Middle East, for keeping prices high. "There is no question that the continued strength in oil prices continues to challenge perceptions of what constitutes a 'sustainable' level," Citigroup oil analyst Doug Leggate said in a report. "The oil price outlook arguably remains more subjective than ever and hence leaves any long-term oil price assertion equally subjective and somewhat irrespective of traditional 'fundamental' analysis."
It has been said that high prices are the cure for high prices and historically this has been true. Unfortunately the innovation and affordable alternatives these high prices are supposed drive are a long way off. We are going to be dependent on oil for transportation for the foreseeable future.
Hybrid cars and the promise of electric cars just will not have enough of an impact in the short term to decrease demand all that much. Unless there is a phenomenal breakthrough in an alternative to gas and diesel we are stuck with an oil based economy.
The sad thing is that there is plenty of oil right here in our own country but our "leaders" lack the will to confront the environmentalists and the Socialists who block every attempt Americans make to improve our own energy situation. By and large the pain and suffering is a badge of honor for them - it proves that free market systems are a failure. The only failure is political courage on the part of those who actually believe in common sense.
We have oil in Alaska waiting to be tapped and the people in Alaska are all in favor of tapping it. The Gulf of Mexico off the Florida coast holds untold oil reserves. We have billions upon billions of barrels in oil shale in the western United States that has suddenly become economically viable when barrel prices
shot past $60.Today I learned about a huge deposit in the northern plains. The USGS estimates there are at least 4.3 billion barrels of oil that can be recovered from the Bakken shale formation in North Dakota and Montana, using current technology. While this oil reserve has been known by oilmen for decades recent developments in drilling techniques make even more it recoverable. At least one man in Washington is thinking right. Sen Byron Dorgan (a Democrat no less) is a proponent of getting this oil out of he ground. Of the report released Thursday by USGS, done at the request of Sen. Dorgan, over the past 18 months he says: "This is great news. This is 25 times the amount of the previous assessment."
How much pain will Americans endure before finally rejecting the conspiratorial Global Warming narrative designed to get us out of cars? When will Americans finally realize that our economic future is being dictated by thugs in Saudi Arabia, Russia and Venezuela because we lack the good sense to use the resources sitting under our lands instead of theirs.
With 70% of the 87 million barrels the world uses everyday controlled by state owned companies and a majority of that oil in the hands of unstable, unfriendly dictators we are paying our enemies to screw us. Isn't it bad enough that are own western oil companies are screwing us?
Like I said we need some sanity in this oil mess. Too bad our "leaders" enjoy wearing straight jackets in their padded rooms.
CW
4 comments:
Hate to break it to you, but the current price of oil has got jack to do with supply. It’s gone up because the it’s priced in dollars (at the moment) and the value of the dollar is collapsing.
The dollar value is going south because, well frankly, your broke. You spend way more than you earn and have no equity or savings left (i.e your a bad credit risk)
So go ahead, exploit those oil reserves. We will just buy it all anyway. We can afford it, you can’t.
The Chinese are the only ones who can afford it currently. The Europeans are just about to run out of luck. The Euro is way overvalued due to the oddity of inbred investing by European funds (hedge/pension/etc). Like the worm Ouroborus swallowing itself, what?
But the Chinese, yes, they can afford it. If they don't choke to death on foul air and polluted water first.
Well, anonymous do we have a case of which came first - the chicken or the egg here? Is the dollar weak because the cost of oil is driving the economy down? I don't buy the debt angle. We have been in debt far deeper than we are now. The previous Fed chairman did us no favors with his interest rate moves toward the end of his tenure. This directly affects the value and the attraction of the dollar to foreign investors. Secondly, tapping our own resources sends signals to friends and enemies - pyschological signals, that we are not going to lie down like wounded dogs. Of course I wouldn't count on the liberals in Congress to do much of anything, the conservatives are even worse...
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