Wednesday, August 13, 2008

The bullshit in reporting on domestic oil drilling

Just a quick note about the oil drilling question.

I’m getting infuriated by the clear distortion by reports who appear to want to downplay the positive impact of domestic oil production here in the USA.

Take for example the following article “Oil: what the drilling advocates say”. In this article, the author Steve Hargreeves (CNN), basically makes the argument that increases of US oil production by drilling in ANWR and offshore would be a “drop in the bucket” and would not bring down fuel prices by more than a few cents per gallon.

However, if you look carefully at the presentation, you see what should be considered to be a distortion.

The “experts” that the article quoted give a “very conservative” estimate that the mentioned additional production would increase US supply by about 1.5 to 2 million bpd. This, they argue, is the “drop in the bucket” because the total daily worldwide production is 73 million bpd. 2 million barrels compared to 73 million barrels really is a drop in the bucket.

But the question is not “What impact will US domestic production have on the world supply.” The question is, “What impact would 2 million barrels per day of domestic production have on fuel prices here?” The net daily US importation of oil is 12,036,00 bpd. So, if we produced an additional 2 million barrels per day and this fuel was consumed domestically, that would imply a petroleum import reduction of nearly 17%.

With fuel prices at $4.00/gallon, that might imply a price reduction of at least $0.68 per gallon. Now we’re down to $3.32 gallon.

So, consider additionally that even OPEC leaders have said recently that there is no under-supply of oil, and that the current oil price is WAY over inflated and should be selling at a considerably lower price per barrel.

Take a moment to read what Ralph Nader had to say in a recent article:

“Oil was at $50 a barrel in January 2007, then $75 a barrel in August 2007. Now at $130 or so a barrel, it is clear that oil pricing is speculative activity, having very little to do with physical supply and demand. An essential product—petroleum—is set by speculators operating on rumor, greed, and fear of wild predictions. “

“In an ironic twist, the major price determinant has moved from OPEC (having only 40% of the world production) and the oil companies to the speculators in the commodities markets. What goes on in the essentially unregulated New York Mercantile Exchange (NYMEX)—without Commodity Futures Trading Commission (CFTC) enforced margin requirements, and, unlike your personal purchases, untaxed—is now the place that leads to your skyrocketing gasoline bills. OPEC and the Big Oil companies reap the benefits and say that it’s not their doing, but that of the speculators. Gives new meaning to ‘passing the buck.’”

Since oil is traded on a futures market, the price understandably fluctuates depending upon what influencing factors are anticipated in the future. This is why the mere threat a possible military conflict in the Straight Of Hormuz can send prices skyrocketing—even though nothing has even happened yet.

Well, folks, the same principal applies in the opposite direction: if the US government signals that it is implementing a MAJOR change in policy that will give the US an increase in productivity, the speculators in the futures market will see a less lucrative future in oil, and the product will be less attractive, and the price will fall.

So by simply declaring that we Americans will reduce our imports by 17% will cause an almost immediate reduction in market price for oil.
But let’s not stop there. If T. Boone Pickens is right, and we can use alternative energy sources such as improved solar and wind technology to reduce our energy usage by an additional 15%-20%, then petroleum will fall again.

Keep in mind that the proponents of domestic drilling are not saying that is the only thing that has to be done. Not by a long shot. McCain, for example, is calling for increased support for a number of energy sectors including; nuclear, coal, domestic drilling, and ALTERNATIVE sources of energy such as solar and wind.

So, to have a truly "comprehensive" energy policy, we have to include all of these. It's ironic that the green movement often quotes the efforts taken in Europe but conveniently overlook the fact that much of Europe is powered by nuclear energy.
Guess what will happen if we declare that we will build more nuclear power plants, and reduce our energy imports even further? yep. Oil prices fall even further, and it will NOT take 10 years to see a benefit! That is the key lie in the Democrat position. The don't think we know about futures markets.

The point is, that these idiot journalists--and idiot liberals among the democrats--keep poo-pooing the notion that we should begin to drill for oil because—by itself—this one tactic would not have a major strategic impact. But the point is, it is just one tactic in an overall, badly needed strategic change.

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