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  • Is the High Price of Oil a Conspiracy?

    Why is the price of oil a difficult concept for some on the left? They want to come up with some grand conspiracy theory and rush to command-and-control legislation claiming that Americans have a “right to lower gas prices.” This is at best silly but at worst dangerous.

    This mentality hinders future economic growth by giving people a victim mentality and stifles the entrepreneurial spirit by making it seem as though government is the only one who can solve the problem. Congress is now fixated on speculators. If Congress wants to weed out speculators, it should allow more potential supply. Anticipation of increased supply will put downward pressure on future oil prices and hence the prices of these future contracts will decline. If these markets have run amok with speculators, these speculators will immediately see the value of their contract decline. (No one is going to want a speculators contract to buy a barrel of oil at $130 when they expect the price to be $100.) Hence Congress quickly punishes speculators in the most efficient way possible — using the market’s discipline rather than holding committee meetings and investigations and then imposing fines and then collecting fines and then who knows what.

    High gas prices are not a conspiracy, they are a signal. Modern economies run on energy. As more countries’ economically develop the value of energy increase. Resources are scarce. (Despite what some say, conservatives are not hoarding all the world’s resources.) This means there is a cost to using resources (labor, land, capital) to supply a product. The high price is telling consumers that the resources needed to get more oil supplied are getting more costly. This may be due to oil running out, but it is more likely the cost for extracting oil has significantly increased. This is especially true when there are oil reserves that could be inexpensive to develop but are currently considered off-limits.

    The “new” idea on the left is to allow drilling BUT only where Congress commands — no matter if exploring an oil reserve makes economic sense or not. The argument that the oil companies already have permits to drill in areas and they are currently not doing so. The left has taken to a “use it or lose it” mantra. To use their exercise metaphor, people “lose it” because exercising is hard and that makes it more costly to “use it.” The fact that oil companies have these permits and have not been “using it” must indicate that the benefits have not outweighed the costs. Oil drilling is hard and costly. If we want the price of oil to decrease, why do we want companies’ to drill in places where it is the most costly to do so?

    How do we deal with our current economic woes? The economy does not need to be solved. It is not a Suduko. An economy simply describes a group of people with values, skills and resources and any technology and institutions they use.

    But there are rules. For example, the market mechanism is one rule.

    A market gives incentives to entrepreneurs (whether employed within a firm or on their own) to find ways to bring costs down. To the extent we let them do so in the case of oil production, the consumer will ultimately be the beneficiary. Entrepreneurs have brought cell phones that can email, E-Z passes on highways, self-cleaning ovens and endangered animal tracking devices. Shouldn’t we listen to what they think is the solution?

    Posted in Energy [slideshow_deploy]

    9 Responses to Is the High Price of Oil a Conspiracy?

    1. Darvin Dowdy, Houst says:

      Karen: I guess I'm one of those hayseed hicks that believes there "is" a conspiracy theory. Not involving big oil, "W" and/or Dick Chenney. Nor Halliburton or the "speculators".

      But I believe totally in my gut that Opec wants Obama as the next POTUS. For obvious reasons. And the Opec ministers know about the fickle, irrational U.S. voter that will allow itself to be led about by the dem's & the MSM. The average dumbed down U.S. voter will blame George Bush and the Republicans for the high prices at the pump as a result.

      So the Opec Ministers have simply turned the spigot a bit clockwise. Reducing the flow. They've got plenty of oil to pump if they wanted to. But they've reduced supply in an already super-heated oil market.

      Yes, I believe we're being manipulated. Seems to be working like a charm so far.

      I know my "conspiracy theory" can't be proven. Or at least by some small fry like me. But, one has to admit it is logical. Makes sense. Tell me where I'm wrong? Please. Darvin Dowdy

    2. Christian, Charlotte says:

      To say this is not planned is not exactly right. There are enough eye witnesses who have seen and tested the vast amounts of oil in Prudhoe Bay. We are also very aware of the shale oil reserves, vast supplies off our coast and so on. Our congress has either planned this by design or by default, but planned it has been. This is a government of we the people and we have also planned this whole crisis by allowing our government to run amuck at our expense. We the people are sound asleep and we allow the bread and circus we are fed to provide our misplaced intelligence. If you fail to plan, you plan to fail. Our failure has absolutely been planned and we better wake up and make a "go to the moon" effort to change things. We the people can do herculean things if we decide to wake up and get to work. We are being destroyed from within and things look very grim moving forward because of our apathy as a people and trusting a an undeserving government. We need leadership with charisma and I just don't see another Reagan sadly.

    3. qt says:

      The reason for high oil prices is very simple. It has nothing to do with supply and demand. Currently, the ratio between what's being drilled and what being demanded is the same as 10 years ago. It has nothing to do with oil companies. Since oil is traded on NYMEX, there's little they can do to control it.

      It is almost entirely due to the weak dollar. Since it is currently cheaper for other countries to invest in our commodities, we are at the mercy of their impact on our markets.

      So, is the weak dollar a fault of the current administration?…You decide.

    4. Darvin Dowdy, Houst says:

      Demand hasn't changed in 10 years?? I think China, India and other emerging nations are demanding much more than they were 10 years ago. No, we're in a super-heated global oil market for sure. Plus the price of oil has almost doubled. The dollar hasn't weakened by half. Possibly a weakened $ has contributed in some small way but mostly that is only a result of the manipulation. Not a cause. DD

    5. Linda in Poynor Texa says:

      I, too, believe that somehow there is a conspiracy behind all this and obama supporters are behind it. The UN, Iran and all those want obama elected. It is not beyond the relm of possibility that this is true! obama is already look at as the savior of the world. What better way than to tout him as the one who saves us all from high gas and food prices? Think about it. But God help us all if he is elected.

    6. Judy Czuba, Stoningt says:

      I believe the conspiracy is being orchestrated by liberals who are determined to regain the Whitehouse at any cost, including purposely stopping America from tapping into our own resources. If Bush manages to start us drilling again, republicans will get the credit. That is why the Speaker of the House refuses to allow a vote now.

    7. qt says:

      Darvin,

      1) I didn't say demand hasn't changed in 10 years. I said the ratio between what is being drilled and demanded hasn't changed. 2 different things…

      2) It is not a direct correlation between the value of the dollar and the price of oil. The price of oil is determined by the market – NYMEX. It is purely a value of how many people decide to invest in the commodity. Now, we have a lot of buyers in oil. That is why the price is high. We have a lot of buyers – a large amount especially from foreign countries, because the value of the dollar is so low. For them, the dollar is a good investment right now. Yes, it's a cause.

      No one is manipulating anything. I don't know how they would.

      I work directly in the Energy market – which is how I understand all of this. It took me a couple months though – Don't get discouraged.

    8. Germaine in Texas says:

      Newsflash to anyone who thinks these excessive gas prices are an Opec conspiracy to get Obama elected… The prices began soaring in 2002 – before Obama was even elected to the U.S. Senate.

      Now, to the serious stuff:

      Using data from the Energy Information Administration (the official energy statistics of the U.S. government). Comparing 2008 data to 2002, we find that compared Supply/Demand for oil is down by 2.1%. However, gas prices have increased by 152% since 2002. Again, the demand for oil goes down and gas prices skyrocket.

      A correlation analysis to determine how much gas prices depend on the supply/demand for oil shows the following:

      From 1994 to 2001, the demand for oil accounted for 56% of the increase in gas price. However, from 2002 to 2008, the demand for oil only accounted for 10% of gas price increases.

      Globally, the supply of oil has decreased by 0.1% since 2006. Also, global demand in 2008 has only increased by 1% compared to 2006.

      Simply put, the demand for oil is not responsible for the increase in gas prices.

      http://www.easttexasonline.com/city/index.php?opt

    9. Randle, Texas says:

      I think what amazes most people is the rapid increase of crude. I knew sooner or later, there would be a deluge of questions and speculation. Somewhere, in all the speculation lies the true answer. I'm certain it is complicated. First, I hear its simple suppy and demand. Then, I hear its speculation by investors and market forces driving up the price. Currently, I can see the political issue for the solution taking the headlines. The question of whether we should open up offshore drilling, or in Alaska are taking the spotlight. This ties it in with a political battle and the presidential election. I think the most recent and shocking news I heard, was that a method for using nuclear fusion as energy had already been resolved. Then, the person went on to tell me that the fellow who had discovered this, and who also had filed many patents on the process, had been murdered.

      Oh yeh, then I see Al Gore on Cspan saying we need a 10 year plan to completely eliminate carbon emmissions and do away with all oil and coal, by completely turning to wind and solar.

      I'm just a country hick, but there is definately something up here with all this information. I'm sure the truth is in there somewhere.

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