Patterico's Pontifications


Bush Ends Executive Ban on Off-Shore Drilling and Oil Prices Drop 7% in two trading sessions

Filed under: General — WLS @ 5:34 pm

[Posted by WLS]

June 20, 2008 — USA Today:

Democrat Barack Obama’s campaign released remarks he plans to make at the start of a news conference in Jacksonville, Fla. in just a few minutes. The lead: Unlike Republican John McCain, he will preserve the federal ban on off-shore oil drilling.

In the advance remarks, Obama tweaks McCain. “In what is becoming a bit of a regular occurrence in this campaign, Senator McCain once had a different position on offshore drilling,” Obama says. “And it’s clear why he did –- it would have long-term consequences for our coastlines but no short-term benefits since it would take ten years to get any oil.”

Obama says that “offshore drilling would not lower gas prices today. It would not lower gas prices this summer. It would not lower gas prices this year. In fact, President Bush’s own Energy Department says that we won’t see a drop of oil from this proposal until 2017. It will take a generation to reach full production. And even then, the effect on gas prices will be minimal at best.

July 15, 2008: President Bush rescinds Executive Order banning offshore drilling.

Price of oil at close on July 14 — $145.18.

Price of oil at close on July 16 — $134.60.

“Crude-oil futures tumbled $4.14 to $134.60 a barrel on the New York Mercantile Exchange, bringing the contract’s loss to $10.58 over the past two sessions – the biggest two-day drop in crude prices since January 1991. Crude has lost $10.58 over the last two sessions, the biggest two-day price drop since January, 1991. It’s now 8.6% lower than the $147.27 record high hit last Thursday. Earlier in the session, futures slumped $6.74 to an intraday low of $132, the lowest for a front-month contract since June 12.”

Yes, I understand there was an unexpected rise in oil and gas inventories reported today, and that spooked traders into thinking that a significant decrease in demand may be beginning to make itself known. But, there is not mistaking the fact that commodities markets price NEWS into their trading, not just the number of barrels that come out of the ground on any given day.

So much for Obama’s understanding of futures trading in commodities.



On The Bright Side — Oil Closed Below $78 A Barrel Today

Filed under: General — WLS @ 3:38 pm

[Posted by WLS]

Recall that back in July when President Bush lifted the Executive Order banning off-shore drilling, oil was trading near $145 a barrel. Today’s price is nearly a 50% reduction off that high.

It clearly reflects a belief in lessening demand for oil in the coming months/years as fear of a world-wide slowdown in manufacturing and consumption begins to take root.

Or does it?

The fact is that speculation had been a huge catalyst for the run-up in oil prices, and so long as there was no prospect for increased supply to pop the oil price bubble, the price rise continued to defy gravity. Once the air started to come out of the balloon, it came out in a hurry.

So, what does this portend for the economy? Well, it’s like a huge tax cut. The price of a gallon of gas in my neighborhood dropped $0.25 overnight from Wednesday to Thursday morning. I know, I filled up Wednesday night at $3.74 a gallon, and when I went past the same station the next day they had re-set the price at $3.49.

A couple months ago it cost me nearly $70 to fill up my tank. On Wednesday I did so for $49. That’s $20 a tank, about a tank a week, for $80 a month, $960 a year — assuming the price doesn’t continue to drop, which it will.

Because petroleum is so pervasive throughout the economy, this price drop will begin to get priced into all manner of things that have seen nothing but price increases lately. All of that works to put money back into a consumer’s pocketbook.

And not just the “rich” — but at all income levels. This money is better than a $600 check from the government because it involves no loss of tax revenue to the government to make it happen.



Remember Last Week When I Commented On How the Price of Oil in the Futures Market fell After the Lifting of the Exectuive Ban on Off-Shore Drilling?

Filed under: General — WLS @ 6:47 pm

Posted by WLS:

If you have forgotten you can read it again here.

Funny thing happened after the price fell two days in a row, totaling a 7% decline — it continued to fall all the way to today.

Recall that subject of my post last week was the closing price of $134.60, which was a drop of over $10 in just two trading sessions from the closing high of $145.18 the day before the President ended the off-shore ban.

Today’s closing price for delivery of a barrel of oil in 90 days was $124.23.

That’s a one week total decline of nearly $20, which is a 14% decline.  One article Drudge has linked right now predicts $3.50 gas by Labor Day.

Maybe $3 by election day?

Just so you know — oil prices passed the $120 mark on May 5, 2008.

So it took about 70 days for oil to go from $120 to $145, but only 7 days to go most of the way back to $120.

Update:  On the drive home I heard a radio commentator attributed to Marketwatch.Com suggest that we could see a drop in gasoline prices by as much as .30 a gallon over the next three weeks as wholesalers and retailers battle to lure back drivers who have backed down their driving habits.  Some retailers have their seen their gross volume sales decline by 15% over the last few months as prices climbed over $4 a gallon.  Market forces may lead them to try and lure back those customers by underpricing their rivals, thereby creating a mini-price war, as they sacrafice a few cents a gallon in order to increase their sales volume.


Obama’s Energy Plan

Filed under: 2008 Election — DRJ @ 12:27 pm

[Guest post by DRJ]

The Chicago Sun-Times posts the text of Obama’s energy speech today in Lansing MI:

Obama challenges us to end our oil dependence in 10 years by mandating fuel-efficient cars and providing incentives and government mandates to promote development of green/alternative energy sources.

Obama will take money from oil companies as windfall profits and give it to people to pay their gas bills. He also has some advice to oil companies: Drill existing leases before asking for new lands.

[Apparently Obama wants oil companies to drill on lands that may not have oil or accessible oil. I call this Obama’s kindergarten plan for oil companies: Not only does he take away their allowance (profits), he also tells them they have to clean their plates before they get dessert.]

Obama wants to cut energy use by 15% in the next 10 years. He points to California’s static energy consumption as proof that it can be done, and he challenges Americans to find a way to change energy sources the same way America met WWII production goals and won the race to the moon.

Obama will release 70 million barrels of oil from the Strategic Oil Reserve, a move he claims will drop oil prices in 2 weeks.

As for drilling offshore where there is oil? That’s a “drawback” but it’s a compromise he will reluctantly allow in a limited manner to show he’s in good faith.

By his own estimate, Obama’s good faith will cost us $150 billion over the next 10 years and billions more in private equity.

Obama’s solutions are weighted toward short-term fixes including the use of emergency oil reserves stored for national security purposes and redistributing money from oil companies to low-income consumers. His long-term government-mandated solutions focus exclusively on expensive and unproven alternative energy sources. Further, his plan intentionally shrinks energy use 15%, a move that will undoubtedly result in a significant economic loss while refusing to anticipate and plan for future needs based on proven oil reserves.

It’s as if Obama wants all of America to plan our economic future the way he and his wife planned theirs: The Obamas had significant debt from their educations but they chose low-paying, community service-oriented jobs that made it hard or impossible for them to pay their debt except with the windfall of his book proceeds. We can’t afford to bet the economic and energy future of our nation on a dream and a windfall, but that’s what Obama offers with this plan.

For those who claim this is all criticism, here’s my solution:

I agree America needs to conserve, become more efficient, and decrease its dependence on oil by transitioning to other energy sources. Instead of walking a tightrope where America deliberately produces the least possible amount of energy during that transition, I want government and private incentives to produce a glut of energy – oil, nuclear, gas, coal, and alternative energy sources – so the economy expands during the process. An expanding economy makes it possible for government, businesses, and individuals to take risks and make mistakes when it comes to finding the best energy solutions.

Obama says he doesn’t want the perfect to be the enemy of the good but that’s exactly what his plan does. He selects mandates and energy sources he likes, discards those he doesn’t, and ends up with a plan that must perform perfectly to succeed. The ultimate irony is that it’s a risk we don’t need to take.


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