Iraq opens oil fields

[josh]

Head - it is currently against the law to drill off of either coast. An executive order was passed (forget which president) and followup up by a law passed by Congress (forget which year) that makes it illegal to drill for oil off of the coasts. It is NOT a matter of the oil companies deciding not to drill. Bush has already said he will repeal the executive order. The Gov of Florida said he will allow the citizens to vote...but Congress refuses to bring it up for a vote.

You cannot convince me that the Democrats actually care about high gas prices right now. Instead, they want us to ONLY focus on long term solutions like better fuel efficiency and alternative fuels...which I am completely in favor of. But we need shorter term solutions as well. When the Republican Congress wanted to open up ANWAR and the coasts 7 years ago would would have oil flowing RIGHT NOW!

[HEAD]

Head - it is currently against the law to drill off of either coast. An executive order was passed (forget which president) and followup up by a law passed by Congress (forget which year) that makes it illegal to drill for oil off of the coasts

I know. That is what I was saying. If they make it legal to drill off the coats or Alaska who is to say that the oil companies will. They can legally drill in the Gulf and do not drill more there because it costs too much. So who is to say that they will drill off the coasts even if it was allowed.

[neighbor]

Even if drill more, we still don't have the refining capacity. Remember what happened several years ago when Clinton released millions of barrels from the strategic reserve? Half of what was released had to shipped overseas to be refined... the net result being gas prices went up instead of down.

[Lantana07]

I think that no matter what happens in the next several months, $4 gas is probably here to stay for a while. Some analysts are now saying they don't really know exactly why the price has gone up so much, so fast. None of the economic models really spell it out clearly as to why. There's not a shortage anywhere to cause prices to spike, nor is there a sudden massive demand in less than a year's time that caused it to spike. Odd...I, like most you, am baffled at the absurdly high profits the oil companies are reporting. How stupid do they think the public is?

One thing I don't know is if this hike has affected other countries like it's impacted ours.

[josh]

Assume you purchased your house last year for $100. At the time you purchased, there were several open lots and several spec homes vacant – you got a pretty good deal. Now, one year later, you need to move (job relocation or something). But now, the area is built out and there are only one or two vacant houses and no empty lots. You put the house on the market and sell it for $125. After all, if someone wants to live in your nice neighborhood (and lots of people do), they are going to pay whatever it takes to reach the clearing hurdle. But answer this: what in the world did YOU DO to deserve to make a 25% gain in just one year? Why didn’t you sell your house for something more modest…like only $115?

Now, change out houses for oil. Exxon has extracted a barrel of oil. It cost them $10 to get that oil out of the ground last year. And last year there was lots of extra oil because there just were not that many people demanding it. But now this year, there is lots of demand for that oil. Sure, you could sell it for only $20/barrel, but just like the homeowner is going to sell his house for whatever clears the market (the highest bidder) you are going to sell your oil at the highest mark too. Why do oil companies have an obligation to make less of a profit than is available in the market but you as a homeowner have no such obligation?

The analogy falls apart if you introduce law breaking. Certainly, if Exxon has people bidding up oil for no other reason than to “bid it up” (i.e. they speculate on oil and never take delivery) – then that seems to be illegal price fixing. But there is a long way to go to make that accusation. My understanding is that the speculators act independent of the oil producers for the most part.

[josh]

This is an excellent article in today's WSJ online about what causes commodities, oil in particular to rise...and what can make them fall.

Since it is a paid subscription I probably shouldnt paste the entire article...her is the link: http://online.wsj.com/article/SB121486800837317581.html?mod=hps_us_mostpop_viewed


You should read the full article to fully understand the reasoning behing the following statements:



Now here is the good news. Any policy that causes the expected future oil price to fall can cause the current price to fall, or to rise less than it would otherwise do. In other words, it is possible to bring down today's price of oil with policies that will have their physical impact on oil demand or supply only in the future.

For example, increases in government subsidies to develop technology that will make future cars more efficient, or tighter standards that gradually improve the gas mileage of the stock of cars, would lower the future demand for oil and therefore the price of oil today.

Similarly, increasing the expected future supply of oil would also reduce today's price. That fall in the current price would induce an immediate rise in oil consumption that would be matched by an increase in supply from the OPEC producers and others with some current excess capacity or available inventories.

Any steps that can be taken now to increase the future supply of oil, or reduce the future demand for oil in the U.S. or elsewhere, can therefore lead both to lower prices and increased consumption today.