At $80 a barrel, an excess of one billion dollars a day is being lifted from the pockets of the American consumer through higher gas prices, heating bills, and lost jobs because of higher industrial feed stock costs, all of which is going into the pockets of oil interests and, most ominously, to foreign suppliers, many of whose policies present us with grave national security concerns.
Let me explain. First the math. We consume some 20 million barrels of oil a day in the United States. Without manipulation nor speculation, with rational government initiatives that are totally lacking at present, the price of oil should be $30/bbl and probably less (doubters, please note the quoted price of oil was $33/barrel just about a year ago). The difference between today's $80/bbl price and a $30 price is, of course, $50/bbl. Multiplied by 20 million brings us to a billion dollars a day or $365,000,000,000 a year. I leave it to your imagination what that sum could mean to our struggling economy. (As an aside, a functioning government could readily mandate other policies to reduce consumption of fossil fuels, necessary to confront the existential danger of global warming, rather than transferring billions upon billions of our dollars to oil interests and their allies worldwide)
It has been the contention of this blog that the price of oil is being grossly distorted by a combination of irresponsible, if not collusive, government policies in combination with feckless oversight of a corrupted commodity trading process. All this results in oil prices that have little or nothing to do with the market discipline of supply and demand. And especially at this moment, where the world is awash with oil and supply is beyond industry's capability to store it readily (super tankers are being chartered to stockpile oil because land storage is at capacity) and consumption is diminishing to the point that a number of refineries have shut down, (please see "Obama Finally Takes on the Banks -- Commodity Futures Trading Needs be Next").
Much of today's price aberration can be attributed to the policies of the oil industry's President in residence, George W. Bush. He carried the beacon of the oil patch's priorities, from a policy coaxing Iraq back into the arms of OPEC, from lack of oversight and regulation of oil trading on the commodity exchanges, from tepid automobile gas mileage standards, from a Department of Energy almost totally wedded to and becoming an apologist for the oil industry and its interests, from a corrupted Department of the Interior filled with oil industry partisans ever happy to accord the industry cozy accounting in the determination of royalties, from coddling Saudi Arabia and OPEC policies, from blocking all Congressional initiatives for "NOPEC" legislation which would have ended the sovereign immunity under U.S. law extended to OPEC national oil companies precluding legal action against OPEC's monopolistic conspiracy, and on.
Of particular significance was Bush's State of the Union address in 2007 pledging to double the nation's Strategic Petroleum Reserve (SPR) to 1.5 billion barrels from its then 727 million barrels (for those counting, 727 million bbls is the approximate equivalent of Iran's annual oil exports to world markets).
The impact of that announcement, though little commented upon at the time, was cathartic. Prices had already risen to a then extraordinary $60/bbl weeks before and were in the process retreating toward $50 and below. Well shazam! The president's announcement changed all that, to the consummate glee of oil producers and potentates. The turnaround was immediate. Prices jumped $2.45/bbl or 5% with the announcement to $55/bbl and never looked back, until hitting $l47/bbl by the summer of 2008, price levels undreamed of, even in the wildest fantasies of the vested oil barons.
Bush's declaration doubling the SPR had a dual impact. First, it stopped in its tracks the downward pressure on oil prices at the time. Doubling the SPR would take ever more expensive oil out of the market, at government expense, but would also reduce market availability of oil, thereby putting additional pressure toward higher prices for oil and oil products. Most critically, it sent a message to the oil barons and their flock that the sky was the limit and the government would be tolerant of whatever they construed, used, hyped, or orchestrated to raise the price of oil. This government was on their side and would worry about its impact on the daily lives of Americans some other time. As the price of oil escalated, the government and the media, extending to Nobel laureates, bent over backwards to keep us all in a trance, spinning the same old threadbare song, "It's all about supply and demand," and its all about the "weak dollar." Please see:
-"Paul Krugman and the New York Times Pious Pontifications At The Pump" 05.l6.08
-"Our Treasury Secretary Pumps For OPEC," 06.02.08
-"Oil's Largest One-Day Gain On Record:Thank You, Mr. Bernanke," 06.06.08
-"A Short Tutorial on the High Price of Oil and The Falling Dollar," 10.19.07
Until it all blew up. With hindsight, quite a number of economists have found that it wasn't simply spurious financial engineering, but the triple digit oil prices of the summer of '08 that made a major contribution to the collapse of the financial markets. After all, how many spec homes in the suburbs can you sell with gasoline at over $4 per gallon and at $5 in some locations, with no end to the acceleration in prices in sight? Please remember that among others, Goldman Sachs was 'helpful' in 'calming' matters at the time by predicting $200/bbl oil.
The financial collapse and the resulting economic downturn was so pronounced and money became so tight that even oil was impacted, with prices retreating to just over $30/bbl in December 2008 . After a brief hiatus given the distorted pricing of the summer the SPR was put back into full operation in January 2009. Far be it for Bush and Energy Department to leave the scene without giving their oil patch buddies one last swipe at the SPR boondoggle.
And then the Obama administration took over. During the campaign, Obama had made statements about suspending the purchases and releasing oil from the SPR (please see "Obama Nails It: Calls For Release of 70 million Barrels From The Strategic Petroleum Reserve" 08.04.08). For the first 30 days of his administration, the price lingered around $30plus/barrel. Then it became clear that Obama had neither the will nor ability to take on the oil interests and deal with escalating oil prices by releasing oil from the SPR, let alone suspending oil purchases for the SPR, and oil prices went on their merry way. They are now more than l00 percent higher than they were a year ago. So much for realtime energy leadership. Well and good that windmills will be built, corn for ethanol will be planted, nuclear plants are on the drawing board, but the day to day economic problems caused by high and distorted oil prices are in the here and now and the economic bite taken out of the economy, given the jobs and income impacted by high oil prices, are being felt by the country at large, now, at this very moment.
There is no excuse for the current high price of oil. Saudi exports of oil to the U.S. are at the lowest levels in 22 years. And not because OPEC mandated export quotas have restricted shipments. There is just no call for more product. Nor because the Pacific Rim markets are pulling more crude. Russia has only recently initiated a pipeline for Siberian oil shipping from the Russian Pacific port of Kozmino. It has already taken significant oil market share from Saudi Arabia and Iran in the Japanese, Korean and Chinese markets.
But there are also other reasons. We continue to have dysfunctional oversight agencies such as the CFTC, that has only now, after much internal debate with commissioners who give the impression of being more focused on the post commission sinecures on Wall Street than the issues at hand, has finally proposed limits on energy speculation subject to a 90 day comment period. It was in August of last year that Chairman Gensler acknowledged that oil prices were being influenced by 'speculative' trading (please see "The Huffington Post Outs The Oil Price Speculators," 08.02.09) and in near one year nothing of consequence will have been done.
NOPEC legislation has not been introduced nor acted upon by this administration. Its Department of Energy, while working diligently on long lead-time alternative energy issues, seems asleep at the switch on real time economic concerns related to the current high price of oil.
And of course, there is the SPR, still being dutifully filled to the happy cheers of the oil pooh-bahs both here and abroad at ever increasing expense to American pocketbooks.
Ladies and Gentleman, this is an emergency. The economy in its current condition can not tolerate $80/bbl oil. It is time to release oil from the reserve as a signal that enough is enough and to make the oil speculators aware, finally, that the price of oil is not a one way street!
An alternative to oil is ordinary water when it is used to supply fractional Hydrogen, a little known breakthrough.
It is the subject of a comprehensive article: “Newly Discovered Hydrinos can Provide Cheap Power for the World”, at: http://www.american-reporter.com
We are developing fractional Hydrogen as a fuel for hybrid automobiles. A few gallons are expected to power a car 1,000 miles as one barrel of water used in this manner is equivalent to 200 barrels of oil.
The engine is expected to be able to run when the car is parked, providing up to 150 kilowatts to the local utility with no wires needed. Such vehicles might be able to pay for themselves.
See: http://www.aesopinstitute.org for more about this potential.
Two laboratories have confirmed fractional Hydrogen. More need to do so. The national laboratories would be an excellent venue.
Once ordinary water is accepted as an alternative to oil, a 24/7 development program can begin to revitalize the auto industry and the economy.
How long after this potential becomes accepted will it take to impact the price of oil? That would seem to be a significant question.
Can it cause a near-term collapse in oil prices?
If that does not occur, the US economy could slip back into Recession. Crude costs are creeping back to the same oil price/GDP ratio (@ $85/barrel & $3/gallon gasoline) that brought New Car & Light Truck Sales to their knees in 2007Q4. Based on present GDP growth targets, it appears that this same threshold will be passed in 2012Q3 when oil hits $97/barrel ($3.42/gallon). Monetary Policy mitigation will be required to make this a soft landing.
The rise in price has nothing to do with the 20-year old Peak Oil hoax. The average of the top 20 recognized depletion forecasts indicates that extraction will rise from 85-mbd today to 92 in 2022. Monthly updated charts illustrating long term production and oil prices can be viewed at our website: http://www.trendlines.ca/energy.htm
We had better get used to it and plan for it ... while we still have time.
Instead, we are spending billions in 'stimulus' to build more roads and highways and to prop up the suburban home building and real estate industries .... while spending minute fractions of that to support building trains (the regular kind), beef up mass transit and slow the growth of unsustainable urban sprawl.
Obama and the Democratic Congress has proven they are little interested in 'change' to the status quo.
They enacted strong legislation aimed at becoming energy independent. In 1973 they imported over 90% of the energy they used, now they're a net exporter of energy, despite little to no oil of their own.
However you slice the pie, oil is a limited resource that will eventually run dry. It's use as a fuel is both wasteful of a finite resource, and damaging to the environment. The longer the U.S. puts off difficult decisions in the way of finding alternative renewable sources of energy, the more expensive the total cost will be.
But Hey! This is America, where thinking is limited to the next quarters profit and loss reports. Long term thinking is reduced to 90 days. If we're falling behind the rest of the world (and there is much evidence to support that position) it is due to our own leadership's shortcomings. That and the inability of most people to face facts.
Cheap oil is a short term solution to a long term problem.
And while the OECD demand has slakened from the recession, China and India demand for oil has been rising since early 2009 - they are now driving the demand.
But beneath it all is the spectre of a constrained oil production that has been stuck at 75 million bbl/d since 2005. We are at Peak Oil. Sorry if you prefer to look elsewhere for a fundamental driver of our crisis. Sir Richard Branson recently released a report in the UK predicting severe supply crunches by 2015 from Peak Oil. It's real, folks, and I do agree, Raymond, it is a serious crisis.
Nuf Said
If so, how is that powered?
For the most part is it coal and oil right now.
Therefore, an electric car in most places still depends on the combusion of fossil fuels
For the most part is it coal and oil right now.
Therefore, an electric car in most places still depends on the combusion of fossil fuels.