Friday, August 8, 2008

How To Really Bring Oil Prices Down: No Drilling Required

It seems that the best answer to bring down the cost of oil is not drilling after all. We have not drilled, not announced drilling, and there is no sign that congress is going to come back and authorized drilling in the restricted regions. So what happened? Really it is the combining of many things at once all related and all converging on a single point.

First the US economy has its "stimulation" in full swing now. (Settle down I know what I said, and gas prices are still 60% higher then they were 2 years ago. And other then gas, food, textiles, and other products still are on the rise.) Secondly, those who bought "futures" are starting to sell off because they saw the price head south. So there has been a "virtual" surplus in the market. That has scared the herd in the downward trend direction. Third, the economy has taken a hit. Jobless figures are out and there are even more unemployed.

I know what you are thinking right now. I just said "the economy is stimulated and that caused cheaper gas, but then in the next breath you said the economy is worse and that brought down gas prices." This is a little sticky. With their economic stimulus packages the cheap goods and not gasoline. That means in the short run our economy picked up a pace and the dollar gained value. However, the fact that none of us have jobs cuts into our fuel consumption. That has reduced demand.

What caused the reduced demand is that people are not driving to work, taking vacations, or going out on their powerboats. Americans have begun to curb their habits. The last major notable is that the rest of the world is starting to catch Americas cold. Their economies are starting to slow down too. What that means is that the ever slipping dollar has rebounded against the eruo. So it isn’t that were are paying less for oil, It is that our dollar is worth more. That is why we don’t see the economic improvements in other sectors besides gasoline. trade with ourselves is still the same. Trade with others countries is on the rebound.

This recent "glitch" demonstrates just how finicky the market is. When our economy is bad, prices go up because the dollar looses value. That is until we curb our use and drop demand. Then the price goes down. That causes the future traders playing the game of "guts" to drop their cards. When the rest of the world starts feeling the affects of the US not buying stuff from them, the value of our dollar goes up and reduces the price we pay at the pump.

The problem is that none of this is stable. The economic stimulus will come and go. Future traders won’t avoid that rush of the gamble long. Emerging economies have lots of tricks up their sleeves to adjust their current dilemma. And as the Christmas season come to us, we will be buying cheap goods from china by the boat load soon enough.

What this does demonstrate though is that the best way to solve our oil woes is to improve our economy. It will fix things way faster then drilling ever could.

2 comments:

Shirley said...

Some good points. I also think that it would be a good idea to curb speculation in oil, as well as food. Or did you say that already and I msised it?

Lord of Logic said...

I hear about "speculators" and "future" buyers all the time. It is more smoke and mirrors. The truth is the largest part of the people making up this type of purchase are the airlines, logistics companies, and mail carriers. They have a budget, see prices at what they think are a low, and buy what they think they are going to need. To curb that would be to clip the wings of their business. Many of these are already struggling.

Counter text

New counter