I keep hearing how it will take 5-10 years for the oil to make a difference in prices if the US government allowed more offshore drilling now. I don’t see why it would necessarily take that long. I probably can’t explain my reasoning very well outside of using example:
You and a friend are floating on a raft in the middle of the ocean, hungry and thirsty. You have 3 apples and a gallong of water, your friend has a bottle of whiskey and a pack of cigarettes. Your friend offers everything to you for one apple and a little bit of water. You don’t know how long you’ll be afloat before rescue, so your price is so high on the food and water that you won’t accept any amount of whiskey or cigarettes. Then you spot an island in the distance with loads of fruit and a lake visible. Suddenly you’re actually making offers to your friend and he may get an apple and half the water for just a few smokes and sips of booze.
So why isn’t the same the case for oil? Why wouldn’t the simple prospect of much more oil in the fairly near future drop prices now?
I’m certainly no oil engineering expert, but let’s say we did open up a whole bunch of new areas for the rigs. Those rigs do not yet currently exist, so #1 you have to go and build them. Those things take a long time to build,
I remember a Discovery channel episode chronicling how long it took them to build/move an extremely big rig to the North Sea. That rig took like 3-4 years to build, and then floating it out was another logistical nightmare.
They had to coordinate like 22 tugboats, and then place it on a foundation on the sea floor (which also took like 3-4 years to build while they were building the rig). Not too mention you’re coordinating 22 tugboats and you have about a 6 inch margin of error while putting it onto the foundation, while waves are going constantly. Granted, I think this was like the #1 or #2 biggest rig in the world, but it’s just a matter of scale. It’s still a pain in the ass to put a new rig in place.
In 3-5 years, the world’s demand for oil is expected to keep growing, so promising more oil for 2012 won’t really scare off the oil speculators. They’re betting with India/China continuing to use more oil. We’re talking 2.5 billion people or so coming into First World status. Compared w/ the maybe 1 billion now living in First World countries right now.
Unless we declare that the oil can only be used in the United States, the oil we could tap will be a drop in the bucket in 5 years. If we did declare the oil could only be used domestically, I’m thinking we piss off a WHOLE lot of countries in the world. (We took all the oil from the Middle East for the past 50+ years, now you can’t have any of ours kinda thing.)
I don’t think there is a factual answer because the price of oil depends on a lot of things. What if we announce we’re opening new drilling areas and OPEC announces that they will cut back production by whatever amount (or more) we bring on-line?
In your example, the fruits will be available very soon, long before you die of thirst or hunger. That’s why the value of your water drops immediately. Your buddy is just going to wait.
It would work with a product that isn’t consumed. For instance, if an incredibly huge and easy to mine deposit of diamonds was about to be exploited, the price of diamonds would drop because diamond owners wouldn’t want to hold on stone that are going to be soon almost worthless.
However, in the case of oil, it’s consumed when bought. Chinese’s industries need oil now, not 10 years down the road. They’re not going to close down for a decade, waiting for the cheap oil.
It would work only if 1) there already were large reserves of unexploited oil and unused refineries, so that oil could be dumped on the market right now 2)The reserves you’re talking about would have to be large enough for the production to exceed the quickly rising demand once they’ll begin to be exploited 3) There was an expectation that it will stay that way in the long run, so that holding on oil reserves wouldn’t make sense for oil producers, like OPEC countries
We aren’t at all in this scenario. Rather, you’ve found a map in the raft mentioning there’s an island with some fruits that you might be able to reach in two or three days. And once there, maybe you’ll be able to figure out a way to find more islands. The value of your water isn’t going to drop that much, if at all. It will more probably rises, since your buddy will be more and more thirsty as time pass, until you reach the island.