I just don’t know what to say about a bunch of idiots who are unaware that lower gas prices were a direct result of Ronald Reagan’s “Don’t Ask Don’t Tell” policy of the 1970s. I’m John McCain, and I don’t recall why I came in here.
Sure, but all things are far from equal. Inflation, increased global demand, rampant speculation, political turmoil, etc. The normal rules of supply and demand just don’t seem to apply to this problem.
I think of it in the same way as dropping the federal gas tax. You don’t think the companies would have jacked the price right back up and taken that 18 cents for themselves? So let’s say crude supply increases due to additional drilling. Do you expect them to pass along lower costs to the consumer or maintain prices due to, um, “refinery bottlenecks”?
Agreed.
More supply is more supply. I’m open to a cite showing that the amount that would be added by aggressively pursuing all domestic oil drilling (and I’m talking off-shore, and disturbing the poor horny caribou in ANWR – everything) would be statistically insignificant.
Under that theory, the price would never drop – and yet we’ve seen gas prices rise and fall based on the market supply. Right?
The Rocky Mountains and Alaska represent much quicker returns on drilling time and investment than the Gulf of Mexico leases do. You’re comparing something that would take potentially ten years to have oil reach the market versus five to six years.
Maybe. That’s why I said it was “arguable.” We’ll never know what caused the prices to move, but the McCain campaign is entitled to argue for that inference without being called liars.
What do you mean, “waste time and resources?” We can do one or the other, but not both? Is there one guy named Norm who can either work on sustainable energy or supervise oil drilling?
Sorry, but you’ve just tried to slip an Excluded Middle in the argument. Why can’t we both work on sustainable energy solutions AND drill the heck out of ANWR?
Yes, except that oil contracts are futures. The price now is driven in large part by what the estimates are in years going forward.
And fourth nobody is drilling anywhere until Congress lifts its ban, which isn’t going to happen.
Indeed. So we can credit Bush for the drop - he helped drive the economy into the toilet.
Inflation doesn’t cause the price to go up. Inflation is a persistent tendency for prices to go up.
Increased demand is, well, increased demand. Political turmoil changes the price because it potentially affects supply (and to a lesser extent demand). And there is ramapnt speculation because supply is uncertain.
This is classic supply and demand at work. What is clear though is that a higher supply will lead to lower prices than would have existed had the supply not been higher.
That’s true.
Now, I do think it’s fair to say that the Democrats, as a party, have been opposed to drilling in ANWR, and for this reason it’s fair to point a finger, generally, at them.
Of course, McCain is also opposed to drilling in ANWR, so he has no business pointing the finger at Obama in a way that suggests that Obama is more responsible then he himself is.
Which explains why worries about short term troubles in Nigeria drive prices up.
Predicting what the price of the futures contract will be in two weeks drives prices far more than what the price of oil is going to be in five years, except for airline companies and the like who are really going to use the oil.
Everything has an effect – I remember a Dave Barry-crafted headline that went something like, “The stock market rose sharply today as investors reacted to the news that Saturn has 14 moons, rather than the 12 previously identified.”
But it’s pretty obvious that news indicating an increase in oil supply isn’t going to raise oil prices. To the extent it has any effect at all, it will be to lower them.
Not sure if you have the time or the interest to listen to the whole 17 minutes, but I found this interview with Robert Kaufmann, director of the Center for Energy and Environmental Studies at Boston University, on NPR the other day very interesting:
The plunging value of the dollar is not making oil more expensive in the US?
It seems that supply and demand can fluctuate, but we still seem to be on a steady price rise. Has demand really increased so much in the past 10 years that a barrel of oil costs 400% more?
Hasn’t domestic demand dropped 2% the past two years?
Inflation is a decline in the value of a given currency relative to goods and services, not relative to other currencies.
Alright, I think I’m following you. Allow me to nitpick a little in order to better understand.
Isn’t oil a commodity? A good? So the value of the dollar is declining, meaning we need more dollars to purchase a barrel? I’m just trying to bring it back to some of Ville’s points regarding classical supply and demand. It would seem to me that the purchasing power of a currency would be more an externality than an integral component.
And it would have if oil traders thought “still President” Bush had any chance of getting this through congress. Which is not bloody likely. So, Bush uttered his magical incantation, oil prices went down from expectation that the economy would decrease consumption, and Bush and McCain claim the magical incantation was the reason. An excellent example of post hoc ergo propter hoc, don’t you think?
Or do you think that oil traders consider it likely that we’ll have a Republican president and Congress in January?
You’re missing a step here. The plunging value of the dollar makes oil, which is imported, more expensive in order for the suppliers to get a constant value per barrel (excluding changes in the price due to market conditions.) This increase the cost of oil, and therefore many other things, in the US. That causes the inflation. If all oil were pumped locally the decline of the dollar wouldn’t make that much of a difference.
Offshore drilling + drilling in ANWR will lower the price of gas from $7.89 to $7.49 in 2013.
Mission accomplished.
Where are you getting that info from?
I suspect he’s not claiming facts, but pointing out that the amount of oil that we’d get eventually from drilling offshore and in ANWR would amount to a very slight decrease in prices way in the future.
That prices will be slightly less absurdly high five years from now? Weekly World News, I expect.
My Dad is a retired Army Engineer major-general, and has been having some interesting discussions with his classmates from West Point whom are in turn having correspondence with the API (American Petroleum Institute).
Below is an excerpt of an email the old man was kind enough to share with me:
*Classmates-
This is the first of two e-mails on the subject. Please forgive me for the length of this but I felt some details were required to tell the story. The second e-mail will concern recent correspondence I have had with the American Petroleum Institute. Regards, xxx
I am encouraged to read of the many recent initiatives in developing alternative energy sources and I strongly support these as well as conservation measures. Nonetheless we will not do away with the need for oil and gas anytime in the near future and it seems to me that we should do everything possible right now, including opening up promising offshore areas for exploration, to reduce the rate of decline in domestic oil production. I do not believe, as some suggest, that this will prolong our dependence on oil. Further I don’t think it will significantly reduce the price but it will certainly help to hold the line or reduce the rate of increase. We need all the help we can get and as soon as we can get it. The recent discussion on lifting the moratorium on offshore drilling has brought a democratic response of reasons why we shouldn’t resume exploration in the 85% of the offshore areas that are now off limits. I would like to address the following criticisms that seem to be recurring:
The industry isn’t drilling many of the leases it has so why do they need to have more leases?
This assertion seems to imply that all of the leases the industry holds are of equal potential and that operators simply go from one lease to the next drilling holes in the ground at random. This idea represents either a gross misunderstanding of industry practices or a deliberate deception by telling a half truth. While it is true that many leases are not being drilled and in fact will not be drilled, it is totally untrue that all leases are of equal potential until they are drilled. A few facts about industry practice might shed some light.
The MMS holds a systematic series of lease sales based on a five year plan (the current plan is 2007-2012; 13 lease sales in the Gulf of Mexico (GOM) are planned or have been conducted for this five years). At each sale a number of tracts are offered to industry. These tracts are typically 3 miles square (9 square miles). For example in lease sale 206 held in March 2008, 615 tracts were bid on by 85 different companies. Many more blocks were offered but not bid on. The details of the sales always show that bidders place an extremely wide range of potential value on the various lease blocks even before the sale. Before a company bids they do a detailed in-house investigation of the blocks being offered. They look at available geologic data, seismic records, in-house experience, company proprietary technology (for interpretation), etc. The purpose of this investigation is to determine what they believe the leases are worth considering the probability of finding significant resources and the probable cost of development.
In Sale 206 the bids on the 615 blocks ranged from 105 million dollars for one block- obviously the partnership bidding this amount considered it to have very high potential to a little over 2 thousand dollars for the lowest bid block (a much smaller block than normal)- obviously having very low potential. Approximately 90 of the leases went for between 105 million and 10 million while over 300 bids were less than 1 million. To me this makes the graphic point that the lease blocks have vastly different perceived potentials. It further underscores why so many leases are not drilled- simply because they are not considered good prospects.
A majority of blocks were not bid on at all presumably because they are considered to have very low potential. Often companies submit nominal bids for a number of blocks that are considered low potential for a variety of reasons e.g. betting that some additional investigation might make them worth something even though the odds are low. From the outset it seems very likely that most of the low potential blocks will not be drilled, especially considering that drilling a single exploration well may cost 50 million dollars or more and ties up valuable and scarce resources. This is not sitting on leases- it is simply a business decision based on the best available information.
Currently the most promising blocks for oil in the GOM are in deep water or ultra deep water- currently as deep as 10,000 feet. Resources, if found in these blocks, must be very attractive to justify the high cost of development- say 1 to 2 billion dollars all in costs for a single field development. Further, a development of this type requires enormous resources including a small army of engineers and scientists. Even the largest companies are limited in the number of such developments it can undertake.
Contrast this with the potential leases that are now off limits. There are undoubtedly many resources in these areas that would be much easier, less costly, and faster to develop as well as having more potential than many of the GOM offerings. A shallow water development may cost 10% of a deepwater facility and requires a much shorter time to complete. Further, in many of the areas that are off limits now there is little or no infrastructure (pipelines, processing facilities, etc) or in some cases a gradually decaying infrastructure. Waiting to develop these areas ensures that they will take much longer to develop if the industry finally does get a green light.
It’s not going to help right away.
This seems to be Obama’s response, Yes. That is true and your point is? Among the things I have heard this one stands out as the most myopic. Perhaps it was a gut response to the over-reaching claim by some conservatives that this is the answer to energy independence- it isn’t. It makes me heart sick sometimes to see how polarized we become on issues. We simply need to start developing these resources as soon as we can to at least slow the rate at which we are falling behind. If prices stay up at the current level or even near this level I believe it will be a market stimulus for accelerating the development of alternate energy forms but this by anyone’s count will take many years to make a significant dent. In the interim we need all the help we can get and exploring and producing in these areas will help immensely.
Developing These Areas Puts Tourism Trade in Jeopardy
This seems to be one of the primary reasons these areas were put off limits to start with. The justification is the likelihood of an oil spill spoiling beaches etc. No one can absolutely guarantee that such an event won’t happen but the record certainly suggests it is a very low probability. The MMS gives industry very high marks for personnel and environmental safety in offshore exploration and production operations. There has not been a major spill associated with exploration and production operations since the late 60’s. Technology has vastly improved since then. In spite of a number of rigs being toppled during Rita and Katrina there were no significant spills. The MMS estimates (see mms.gov) that natural oil seeps add about 150 times more oil to the water column than exploration and production operations do. Ironically putting 85% of the offshore areas off limits for exploration and production as our government now has done stimulates imports and adds tanker traffic which is where the environmental risk is the greatest.*