A crude analysis

Hmmmm….. apparently the “evil” oil industry is not immune to market forces after all.

July 16 (Bloomberg) — Crude oil futures fell more than $4 a barrel in New York after a surprise increase in U.S. inventories and as a slowing U.S. economy sapped demand for energy.

Note two key words in the following paragraph.

Supplies rose 2.95 million barrels to 296.9 million barrels last week, an Energy Department report showed. Stockpiles were forecast to drop 2.2 million barrels, according a Bloomberg News survey. Fuel demand averaged 20.3 million barrels a day in the past four weeks, down 2 percent from 2007, the department said.

[…] Oil today fell as low as $132 a barrel, more than 10 percent below the record of $147.27 reached on July 11. A drop of that magnitude is commonly referred to as a correction.

Supply and demand — it has always worked and it always will. Granted, the spike in supply in this case may be attributed to reports that Saudi Arabia has recently begun boosting it’s oil production. But it doesn’t matter where the suppply comes from — just the fact that there is more oil on the market is enough to lower prices. Don’t buy into the media mishmash — it’s not the dollar that is controlling fuel prices. Nor is it ‘speculation’. It’s the same laws of economics that have been in effect from the beginning of civilization.

And contrary to what the Dems would have us believe, there is no Darth Vader in this story. The primary reason oil has risen so sharply is due to simple lack of competition. This is no conspiracy crafted by grim-faced CEO’s and Saudi princes sitting around mahogony tables in dark smoke-filled rooms. But if you insist on believing in that, I’ve got a treat for you: I’m giving away free tin-foil hats and alfalfa sprouts so that you can be prepared as you sit in your bunker and await the New World Order.

There is nothing sinister and mysterious about the oil industry, folks. This is good old-fashioned economics at work.

Not surprisingly, Bloomberg has failed to credit the President’s lifting of the coastal drilling ban as being a factor in this sudden drop. But I guarantee it has gotten the attention of the futures market. I further guarantee that in the infinitely unlikely scenario of Nancy’s gang suddenly ceasing pump-politics and lifting the drilling ban themselves there would be an even further drop.  Futures traders don’t have to see the rigs in front of their eyes before they will act. Just the news alone that we will be building more of them (and yes, more refineries) will be enough to start a decline in prices. And as the futures market goes, so eventually will OPEC and the non-OPEC exporters.

So what about alternatives like natural gas and wind? Wonderful! Let’s pursue those as well. Give oil companies the green-light to drill off the coast and get some of the alternatives in development and soon we no longer have an energy crisis. I’m not radiacally pro-oil… just pro-competition.

“Oh geez give me a break , it’s not THAT simple!” Yeah, actually I think it might be… you can complicate it if you’d like but one thing I’ve observed over the years is that the free market works… and no industry is exempt.

2 Comments so far
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OPEC and the oil industry have been claiming renewable fuels like ethanol are resonsible for 40% of their increased costs… they are the same people trying to shift the blame for rising food costs away from themselves onto biofuels. http://www.pickensplan.com and http://www.goodfuels.org/2008/07/wsj-on-chakib-khelil/ are worth reading.

Comment by Paul O

The next factor that effects gas prices is the cost of refining the crude oil. Tammy Opec

Comment by Tammy Opec

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