Factors Affecting Oil Prices & How

I’m surprised at how normally good analysts trip up on the subject of oil and gas.  President Obama has been blah-blah-blahing on the stump that the supply of oil has nothing to do with the price of oil and gas.  Some folks have chipped in that supply is not the problem because the demand for oil has slacked off.  Really, guys, this is not that complicated.

 
U.S. demand has slacked off for two key reasons: 1) we can’t buy as much gas as we’d like to because it’s so expensive.  We’d travel more and drive more but we can’t; 2) the economy is so bad: businesses who’ve gone out of business, people who don’t have jobs, businesses who aren’t growing and new businesses who aren’t being created don’t need gasoline for traveling, shipping goods, manufacturing goods or running their business.  We are actually exporting oil and refined products because stronger economies than ours can afford to pay for it and our economy is not generating that kind of strength.
 
People are screaming about speculators.  Why is there an opportunity for speculators?  Because the green enviro-zealots have taken control of our government, so that instead of supplying nearly all of our oil from our own sources like we could, we are in a position where significant percentages of our oil must come from great distances, through vital choke points like the Straits of Hormuz and from dictators and radical governments whose behavior is unpredictable and often hostile.  We don’t even have sense enough to maximize our purchases from friendly next-door neighbors, as evidenced by Obama’s rejection of the Keystone XL pipeline after three years of “study.”
 
Does supply matter?  If we pumped or bought from Canada and Mexico 90-95 percent of our oil, our markets wouldn’t tremble when Hugo Chavez goes to Cuba for more cancer treatment, with no obvious reading of who will control Venezuela’s large flow of oil if Hugo checks out permanently.  Iran makes more money every time they rattle sabers over the Straits or snarl at Israel again.  We have voluntarily handed people like this the whip hand over our oil supplies; therefore, over a key economic engine.
 
Does supply matter?  Ask the natural gas folks.  For the first time in recent history we have ample supplies of natural gas because of technologies government hasn’t yet taken away and accidents of geography (private land vs. government land).  The price of natural gas has come down to relatively cheap levels.  Supply, and the nature of supply lines, does matter.
 
Does our woeful economic policy matter?  Yes, it does.  Oil is priced in dollars.  As our government continually weakens its financial position by spending money it doesn’t have, borrowing from less-predictable parts of the world, following an anti-free market economic policy that worsens our long-term economic strength for all the world to see, the dollar falls.  As our government accelerates the process by printing money with nothing behind it but more stacks of paper and barrels of ink, our currency’s value will continue to erode and the price of oil will rise in compensation.
 
Supply, more specifically, our own domestic supply and that from next-door, friendly neighbors, still matters.  For the president or anyone else to claim it doesn’t, is either a deceptive diversion or ignorance of the facts.
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Published in: on March 3, 2012 at 5:01 pm  Leave a Comment  

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