Can she be McCain’s Veep and still do what needs to be done in Alaska? There is no other area of this country as critical to assuring our petroleum reserves over the next few decades (beyond the Gulf Coast), other……

. . . In short, there are trade-offs no matter what we do, but none of them is WORSE than doing nothing (short of hoping for a miracle), which is what the eco-weenies argue we should do.

fulldroolcup on June 27, 2008 at 2:52 PM

Excellent summary of the situation. Thanks!

Liberals for years have been arguing for “energy independence”, saying that would lessen our reliance on Mid-East oil, and hence our geopolitical interest in that part of the world.’ We went to war (first Gulf war) precisely to secure the supply of Gulf Oil and prevent Saddam from holding it hostage, remember?)

At the same time eco-weenies worship at the altar of Saint Gaia, telling we can’t drill here because of the health of “the planet”.

NOW, we’re told that CO2, which is essential to all plant and animal life on earth, is a pollutant, and that we need to restrict “our” (American, not Chinese or Indian) use of oil, natural gas and coal — and restricting new exploration and drilling is a step in that direction.

It’s all very convenient, because now, NO MATTER WHAT the counter-argument, liberals will say there’s either no point to drilling for oil domestically, or it is harmful to “the planet”, or we need to restrict its supply “for our own good”.

IOW

*”energy independence” has been swept under the bus. Lib/weenies now arguing Global Warming is the bigger problem —except when they don’t.

* potentially 15 billion barrels of domestic oil from ANWR is now useless — even though we would not be exporting bazillions of $$$$$ to the Mid-East to pay for the same amount of oil, thus decreasing our balance of trade deficit, creating domestic wealth (hundreds of thousands of people and pension funds own Big Oil stock) AND alleviating downward pressure on the $$$.

* we need to develop “alternative” energy sources—never mind that we went through the failed Synfuels “initiative” under Carterca and can already see the ethanol debacle unfolding in front of us. And never mind that there are no guarantees that such alternative energy sources are anywhere near commerical realization — call it “faith – based research”, if you will.

Never mind that the only non-CO2 generating power source that could make a real dent in coal/oil/natural gas consumption —- and provide the ONLY source of hydrogen that doesn’t generate more CO2 and/or provides an economically “positive” balance in resultant energy in producing H2 or powering batteries vs the energy needed to produce it —- is off-limits! (that would be “nuclear power”).

* you say OPEC can decrease their oil prices to keep them high world-wide, which of course will have the positive benefit of spurring research those alternative energy sources lib-weenies love so much, WHILE encouraging India and China to burn more coal — a negative consquence to global warming zealots.

In short, there are trade-offs no matter what we do, but none of them is WORSE than doing nothing (short of hoping for a miracle), which is what the eco-weenies argue we should do.

. . . much of it coming from Mid-East sovereign wealth funds

This phrase caught my attention. Do we have here a nice positive-feedback mechanism for the oil sheiks of the MidEast? They pour money into futures, prices rise, they sell oil for more, and pour more money into futures.

Neat trick, if it’s true. Can we decouple that? How?

Thus, for example, in an April report, Lehman Brothers said the price of oil had been pushed to inflated levels by a $40bn inflow into commodity index funds this year, much of it coming from Mid-East sovereign wealth funds. The result of all this is the chaotic market we see every day, with a distorted price-discovery mechanism, and prices uncoupled from physical supply.

OK, that sounds like there is a set of circumstances –including but not limited to futures markets– which is acting to “uncouple” prices from supply. Interesting.

Now, could someone explain as they would to an idiot or a small child what is meant by this “margin requirements for non-physical hedgers” business? I think I can kind of see the outlines of it, but a few more dots would be helpful. I am wary of any idea which has government blundering in to further distort –by legislative fiat– an already-distorted market. Would legislating a change in the “margin requirements” be a case of that?

Noocyte on June 27, 2008 at 3:42 AM

Just the effect of renewed, aggressive drilling and other energy development will surely ease fears of future shortages, and thus should bring down the futures price.

If a large component of the futures price is the result of institutional (non-user) money looking for good bets in commodities, though, it is likely that some of the regulations proposed by Democrats (believe it or not!) might help curb the rising prices. Read this letter from one of Benny Peiser’s correspondents:

(9) RE: OIL CRISIS AND OFFSHORE DRILLING

Hi again, Benny,

I don’t intend to become your penpal on this subject, but I thought maybe there’d be some value in devoting a few more words to the current oil price situation.

Despite the pejorative texture of the word, a speculator in the oil futures market is simply a trader–a pension fund, say, or a sovereign wealth fund–who hasn’t the intention or the capacity to physically receive oil. Their barrels are ‘paper barrels.’ Originally, futures were employed by heavy users of petroleum products, like refiners or airlines, to hedge their physical commodity exposure, and they are important for that reason. Some speculative capital is needed for adequate liquidity, but the recent huge influx has overweighted the physical hedgers. Speculators now account for about 70% of all benchmark crude trading on the New York Mercantile Exchange, up from 37% in 2000.

In effect, these investors are hedging dollars, whose weakness has been driven by the Fed’s lengthy monetary expansion. With the drying-up of investment vehicles associated with the sub-prime market, vast sums were left hungry for new feeding grounds. Thus, for example, in an April report, Lehman Brothers said the price of oil had been pushed to inflated levels by a $40bn inflow into commodity index funds this year, much of it coming from Mid-East sovereign wealth funds. The result of all this is the chaotic market we see every day, with a distorted price-discovery mechanism, and prices uncoupled from physical supply.

There is now legislation afoot to rein-in some of this. Among the proposed remedies are increased margin requirements for non-physical hedgers (perhaps to the 50% already required for stocks), position limits for speculators, better disclosure of positions, and, perhaps, preventing pension funds and investment banks from owning commodities at all. A panel of oil analysis experts, testifying earlier this week before a sub-committee of the House Energy and Commerce Committee, felt such measures might quickly drop the oil price to $65 to $75 a barrel. Even doubters among the Republican congressmen seemed more inclined to question the feasibility of such measures than their desirability.

All of the panelists favored offshore drilling for the long term (one mentioned energy security), but were unanimous that, at present, big oil would be unwilling to develop such remote sites, since oil industry executives themselves consider the current oil price to be fundamentally unsustainable (plus of course current supplies are meeting current demand). This is consistent with a Bloomberg report on Monday that insiders at the big refiners, like Valero and Tesoro, are buying more of their own stock than at any time since 2000, in anticipation of a drop in the oil price. We’ll see.

If that panel’s testimony is still available at C-Span’s website (6/23, Bart Stupak, D-MI, presiding; it’s the first panel, comprising Fadel Gheit of Oppenheimer & Co., Roger Diwan of PFC Energy Consultants, Michael Masters of Masters Capital Management, and Dr. Edward Krapels of Energy Security Analysis), I heartily recommend it as a great three-hour window into the complexities of the oil market, and the limited applicability thereto of the homilies of lemonade-stand economics. My own view is we need to act immediately on speculation, because $4 gasoline and $5 diesel is killing our economy (and others), and perhaps these prices could be halved by Labor Day. Later, we can debate the value of developing U.S. domestic reserves to come onstream five to ten years from now. It would be a tragedy to hold Americans hostage by trying to conflate these two approaches into a single piece of legislation, since the latter is controversial while the former is not.

Best regards,

Burton Golden

Benny Peiser’s CCNet is an enormously valuable e-list on energy and climate catastrophism: “CCNet is a scholarly electronic network edited by Benny Peiser. To subscribe, send an e-mail to listserver@livjm.ac.uk (“subscribe cambridge-conference”).”

If you’re saying that the long purchases are driving up prices, I’m going to have to disagree. These transactions are bets, basically, on what the investor thinks the price will do. Betting on the outcome of an event doesn’t change the probabilities of the outcome. If supply rises and demand falls, the price will drop, no matter what the speculators bet.

Hmmm. I get the concept, but I guess where I’m coming from is wondering if there might not be a kind of positive feedback here, where people see other people betting almost exclusively one way (which is about the real status of the supply of and demand for real oil), which in turn makes them more likely to bet the same way (which might be about a more “psychological” effect, a kind of ‘flocking’ behavior which is subject to perceptions, no?)

Go up to Da U.P. of Michagan, and you’ll need a translator.

Noocyte on June 27, 2008 at 3:42 AM

So, request a gentle reality-check here: “Speculation” is about trading in risk, buying into the probabilities of some given commodity increasing or decreasing in value over time. Check?

Yes.

The alarming proximity between the values of Supply and Demand in the current global oil market is one of the factors which has driven the very brisk “long” (i.e., projected to increase) purchases of oil futures, which in turn amplify the upward drive in prices.

If you’re saying that the long purchases are driving up prices, I’m going to have to disagree. These transactions are bets, basically, on what the investor thinks the price will do. Betting on the outcome of an event doesn’t change the probabilities of the outcome. If supply rises and demand falls, the price will drop, no matter what the speculators bet.

I have made my crush on the good governor clear in an earlier post. Ok, deregulating the oil companies may not exactly be all that do-able right now as AllahPundit at Hot Air points out, but it would be the right thing. So the crush continues. *SIGH*…..

Look to the 70′s for an example of what an OPEC oil embargo and bad US government policy does for the man in the street and the economy. Look more recently at Russia’s attempts to blackmail the EU and the East European states with supplies of natural gas (normally happens around winter time).

Defuse Russia’s energy weapon Pipeline politics.

Ukraine warns of energy blackmail.

We should start extracting, and refining, our raw energy materials while it is still a luxury to do so.

Nature’s Perfect Woman discovered in Alaska?

Of course, we shouldn’t nominate Palin for Veep. She’s too young and inexperienced. They wouldn’t be able to attack Obama on that issue. Like Hillary did with so much success.

So, request a gentle reality-check here: “Speculation” is about trading in risk, buying into the probabilities of some given commodity increasing or decreasing in value over time. Check?

The alarming proximity between the values of Supply and Demand in the current global oil market is one of the factors which has driven the very brisk “long” (i.e., projected to increase) purchases of oil futures, which in turn amplify the upward drive in prices. Demand continues to increase, while supply is subject to a variety of all-too-plausible scenarios for interruption, with very little slack before it is outstripped by demand. Seems a safe bet that “up” will outweigh “down,” by a pretty wide margin. Check?

The US taking active, concrete, and visible steps toward introducing more oil from domestic sources, while simultaneously incentivizing development of alternative energy and fuel sources will start a very public clock ticking toward the supply:demand ratio undergoing a considerable realignment. [False dichotomy to illustrate the ends of what would actually be a spectrum:]Either domestically produced American oil will be used domestically (and so take a proportion of American demand off-line in the global market, leaving more available supply from foreign sources), or that domestic oil will be sold on that global market, with the same net effect. Check?

Futures traders will see this clock ticking, observe the conservation and alternative energy/fuel efforts underway, take the measure of the American zeitgeist, and may begin to judge that the future of betting on a consistent rise in petro-prices is not so bright. Long orders would decrease, and along with them the upward pressure on prices…before a drop of oil is actually extracted from the ground. Check?

So the question of what immediate benefit there would be from beginning exploration and exploitation efforts on domestic fields is tending to be interpreted too narrowly if the effects on the market of the efforts themselves are not being taken into account. Check?

Bonus round: Palin is marvelous, but it would be a mistake to decant her before 2012. Check?

Is that what an Alaskan accent sounds like? Not quite Canadian, not quite North Dakotan.

Youse gotta prob’em wit Nort Dakoota axcents AP?

Hoser.

:)

Actually she has much less of an accent than I would normally hear in North Dakota…some places in WI and MN.

And now that I think of it, it’s the rest of the country that sounds funny.

TexasJew on June 27, 2008 at 12:32 AM

LMFAO J.R. Ewing HAHAHAAAA OMG Not DALLAS!

I thought I would check this before I dragged my tired butt to bed.

Now off to bed to be up at 3 am my time to work out and get some stuff done.

Expect to hear more on Sarah in the upcoming days. :)