Thursday, June 19, 2008

An Exchange on Oil Prices

What Came In to K.R.:

It is apparently the case that oil speculators are substantially responsible for the current astronomical gas prices. Under current regulations they can buy oil futures by simply putting down 5% of the value of the oil. I am no economist, nor am I sure of the constitutional validity of this – but I suggest a new law providing: (a) that henceforth all oil futures bought or in any way controlled by American investors must be purchased w/ a minimum 60% down; and (b) that all existing oil future contracts purchased for less than that are null and void unless the investor raises the amount paid down to 60% of the value within 60 days.

K.R.'s Response:

It is true that oil "speculators" may be able to take advantage of the imbalance between available supplies for, and escalating demands for oil and by doing so exacerbate the surge in the price of oil. But their actions are a relatively minor component of what we are witnessing. The fact that Democrats are able to evade responsibility for their irresponsibility by blaming those whom they call "speculators" is a testament to the woeful lack of understanding of even the most rudimentary basics of economics by those who have passed through what passes for a system of public education.

And I say this as a registered and true independent. I am completely nonpartisan, hating all politicians equally.

The fact is that the market for oil is a global one, and your proposal would keep Americans out of it and eliminate the competition that their participation brings to the marketplace.

Equally unfortunate is that the output of the world's oil producers began to decline well over a decade ago and with great effort (and expense) they have managed to keep production fairly stable and steady. At the same time, however, demand has been escalating, and it will continue to do so and, in fact, accelerate as backward economies around the world increasingly industrialize. Those referred to as "speculators" buy at (and guarantee producers) current spot prices prior to actual production, and they do so anticipating the ability to profit as the supply vs. demand gap -- and consequently the spot price -- increases in the future. But for the price guarantees that the "speculators" make available to the producers, the oil that is the most expensive to extract would remain in the ground.

A decision to explore for and develop all of our potential sources of domestic oil would narrow the foreseeable supply - demand gap and thus immediately reverse or at least slow oil price increases. Having attended the Colorado School of Mines as an undergraduate I know and keep in touch with quite a few people in every aspect of the oil business -- exploration and extraction, processing, and transportation and storage. My most well informed and astute contacts in the industry estimate that a decision to develop what we have would immediately reduce the price of gasoline at the pump to between $2 and $3 a gallon.

Instead, our "leaders" are intent on appeasing the environmental Luddites who are happy to see our transportation system, industrial output (and employment), and our economy as whole melting down, and our dollars continue to flow overseas to suppliers who have little good will toward the U.S. and supply various portions of their surplus earnings to groups actively seeking to do us harm. None of these elitists have any genuine concern for the hardships their policies are inflicting on American working families.

While alternate sources of energy may fairly soon play a role in reducing the gap and eventually replace oil altogether, this is uncertain and of no immediate help. Also, with the exception of the hydrogen fuel cell, most of the alternate energy sources on the horizon -- solar and wind power, for example -- do not offer any prospect for meeting the need for portable energy sources. Thus it is nonsense for Democratic politicians to keep professing support only for sources of energy that do not actually exist and cannot meet current needs.

Readers who agree with K.R. on this might respond as K.R. now does to requests for political contributions -- sending back the return envelope, enclosing a single sheet bearing following message:

"Will not contribute to, support, work, or vote for the election of any candidate or party that does not actively support exploring for, and and developing all of our potential sources of domestic oil."

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