Supply and Demand :The market price is when the two are in balance.
Currency :
The value of what you are trading for the oil.
Governments:
The controls and regulations imposed on oil or none.
The price of oil has over the past 100 + years have varied. In 1869 oil sold for over $80 a barrel, then quickly dropped to less than $20 a few years later. It maintained this low price until the 70’s, when it peaked out at over $60. The Nixon administration placed price controls on the country as well as the beginning of the EPA. Since that time, no new refineries have been built and very little drilling for more oil. Nixon however did promote the Alaskan pipeline, so he isn’t total evil. In the early 80’s, the Carter Administration phased out price controls (would you believe). The price of oil quickly dropped to $20 + and stayed in that area until 9/11 aftermath , namely our invasion of Iraq and Afghanistan.
Does that tell you something?
The worldwide demand for oil is on the rise, but not for American dollars. The demand for American dollars is falling. Nobody wants them since they continue to be worth less than in the past. The reason for this is because we keep making more dollars, but we are not making more oil. Governments are extremely good at producing more currency, but poor at producing more oil. As a matter of fact our Government has done, its best to insure that no more oil will be produced, at least in our own backyard.
A 1947 silver quarter will still buy a gallon of gas as it did in 1947. The reason of course is that Government can’t make silver either and a silver quarter is valued at around $4.30.
When you listen to the politicians about economic issues always keep in mind that they and their News media cousins really don’t know what they are talking about or CARE.
An example of this even when most of the idea is correct reflects this economic ignorance. Newt Gingrich is promoting a petition to Congress titled Drill Now. A petition that Congress may listen to. One of Newty’s ideas is to dump a third of the USA oil reserves on to the market to punish all the speculators in oil. I assume he thinks they are responsible for the high price of oil.
Politicians have a great talent for finding scapegoats to cover up their irresponsibility.
The big oil companies, China, India, Saudi Arabia, speculators and eventually global warming.
I pray that the day before Newty does this he tells me, as I’m sure he will all of his friends; in order that I can sell oil options short. Then I can be as rich as he is.
Proven oil reserves are not a measure of future supply. ‘Proven oil reserves’ is oil that can be extracted at current price levels and current technologies. The higher the price of oil the more proven oil reserves appear.
Shale oil alone in this country is triple the amount that is in Saudi Arabia. Also sand oil in Canada is 8 times that of Saudi Arabia.
Brazil has just made a huge discovery in the Atlantic Ocean.
Alaska is another place with 12 billion gallons of oil.
Conservative estimates place available world oil at 4.5 trillion barrels, which translates into 140 years at current worldwide usage.
We can’t drill our way out of this? The government sure can’t.
Alternate energy resources are inevitable, but only if we keep the irresponsible ignorant politicians out of the picture, who have a propensity to exploit every variable that doesn’t fit their blueprint of the world.
Similar is the recent law banning incandescent light bulbs by 2012. Trying to force the American people to use the light bulb that Congress approves; the spaghetti fluorescent bulb. While LED lights are already hitting the markets through natural market forces and will eventually replace the incandescent, unless the politicians get involved.
Note: Congress can’t produce light bulbs either.
Some thoughts from 8th grade Economics A101; a course that our current candidates for President skipped.
Scarcity; everything is scarce.
Shortages; availability at a specific price.
Pricing; Everything is priced at its maximum, just like your time and efforts. (we all want to be paid the most we can get)
Supply and Demand; How much there is and how many want it.
You have to love our politicians and their rhetoric on how they are so concerned about what you pay for a gallon of gas and what they are going to do for you; when they are the ones that have distorted the market place so badly, that you pay over $4.00 a gallon. Then like dictators of the 15th and 16th Centuries give us permission maybe to do a little exploring here and maybe build another Nuclear plant and maybe, if I’m elected I’ll allow you to buy the light bulb you want.
D.S. Harford
dsharford.com
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