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Oil Prices Plummet When Ban on Drilling Was Lifted
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by BigT | July 15, 2008 at 02:38 pm
1319 views | 62 Recommendations | 31 comments
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Piper Alpha - 20 Year Anniversary Of Worst Offshore Oil Accident
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I thought it was going to take ten years to see any change. Look, the market works this way (yes, even those mysterious "speculators" whom many say are the cause of this rise in oil prices): when the market thinks there's going to be an expansion in supply in the future the price will go down because there is a new equilibrium set between supply and demand. And let's get another thing straight, there is still a ban on drilling on the outer continental shelf - a congressional one that is set to expire at the end of September (think they'll reup it?).
Oil prices have gone up for a number of reasons: the value of the dollar has gone down, the threat of war in the Middle East (Iran), the looming middle classes that are set to significantly grow in China and India, and our obstinate refusal to drill for any of our own oil which is just a manifestation of the environmentalist movement.
And no, drilling will not be the answer forever and ever. There is no, zero, zilch, nada, there is no answer for our energy needs that will last forever. In the meantime it makes sense to drill for an energy source that we have used to spur on economic growth for over the last century. Drilling is the answer.
In a dramatic move yesterday President Bush removed the executive-branch moratorium on offshore drilling. Today, at a news conference, Bush repeated his new position, and slammed the Democratic Congress for not removing the congressional moratorium on the Outer Continental Shelf and elsewhere. Crude-oil futures for August delivery plunged $9.26, or 6.3 percent, almost immediately as Bush was speaking, bringing the barrel price down to $136.
Now isn’t this interesting?
Democrats keep saying that it will take 10 years or longer to produce oil from the offshore areas. And they say that oil prices won’t decline for at least that long. And they, along with Obama and McCain, bash so-called oil speculators. And today we had a real-world example as to why they are wrong. All of them. Reid, Pelosi, Obama, McCain — all of them.
Traders took a look at a feisty and aggressive George Bush and started selling the market well before a single new drop of oil has been lifted. What does this tell us? Well, if Congress moves to seal the deal, oil prices will probably keep on falling. That’s the way traders work. They discount the future. Psychology and expectations can turn on a dime.
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Most RecentMost Recommended Comments (31)
at 14:48 on July 15th, 2008
BigT, I like this story. It's good stuff. What part of, once we say we are going to drill, prices will come down that day" don't the Democrats understand?
at 19:53 on July 15th, 2008
As a practice it is always dangerous to fix a philosophical argument to a single day of trading.
Here's my prediction...
The folly of the drill Alaska = lower oil prices theory is that the market for oil is international and this drop in the bucket will be gobbled up by rising Chinese demand. The effect on US consumers will be minimal. We will see how these rival theories prove their merit is in the weeks, months and years to come.
at 07:52 on July 16th, 2008
While I appreciate your statement that one data point does not mke a trend. In another story, as I follow politics here. Republicans have made the statement that on the day the futures market gets an inkling that we are ging to drill, the oil precies will comne don that day.
I was relating to a stetement made by Republicans and an actual effect on the market the first trading day after the staement was made. The futures market act and reacts to what may happn in the future. It is both a data and emotional driven market.
Today oil per barrel is down another 4.37 per barrel. This relates to a almost an 8% drop in two days. This is significant. As you say, unless the trend lines go beyong 6 points it is not a real trend.
There are ways to deal with the Chinese demand. Why export oil that we can use here in the US. Our refineraies are here. The other issue is that the EPA amd state requirements for over 40 blends of gas to comply with emmissions. If The US wasnt to reduce the price of gasoline, legislatures should get together and come up with a or a few blends that would work nation wide.
The oil in the Gulf and on the eastern shelf is under estimated. I am working on that data now. weeding through companies who want investors and actual government studies will take me a few days. What I am seeing is that since the ban was set the oil data was minimized. I will do my best to get some valid data.
The Republcan rumar that we have oil drilling by chinese off the coast of Florida, appea to be just that, a rumar. I ahvent found the rigs anywhere between the two countries. There is political spin on both side of this issue.
Thanks for your comment
AL
at 03:21 on July 19th, 2008
There is NO folly to drilling in ANWR. None. Period. FOr some reason there are those in power who no longer want us to be an industrial leader. And they want us to remain dependent on terrorists for oil. Both of these are tantamount to treason. Since the crisis in the 70's congress has reacted in the OPPOSITE logical way and Decreased our ability to utilize the huge resources available to our country.
It is time to vote them all out.
at 14:57 on July 15th, 2008
BigT, I like this story. It's good stuff.
Thanks for answering a lot of questions for me!
at 15:05 on July 15th, 2008
BigT, a well-written piece. I'm unclear on one thing: how much supply will U.S. offshore drilling add to the market?
at 15:24 on July 15th, 2008
Supply and demand are not the only drivers. Speculation is an issue. Why did the price drop 10 buck over the course of the day? did supply go up? Did demand go down? One announcement from the President that there is a future of drilling that in the futire will increase supply has speculaters in the futures market bidding down.
at 15:39 on July 15th, 2008
Thanks politisite. Obama and McCain like to blame high oil prices on greedy "speculators" purportedly operating behind the scenes, but as I think BigT's story points out, the key price drivers are the expectations of oil producers.
at 18:58 on July 15th, 2008
BigT may have more knowledge in the area then I. If prices come down again if congress lifts the ban. I think you will have to say that speculation has a portion of the blame. I am not one that thinks that if we got rid of speculators the world would be a perfect place with 100.00 oil. I think everyone like to pass the blame to the next. It usually comes down to each component having some of the price built in. I don't like to Argue with BigT as he is pretty right on before he put pen to paper. But it is not Obama or McCain that causes prices to fluxuate. It is the Exceutive and congressional branches of governement, along with supply and demand. The ma i looked at today, provided by Senator Jim Demints office (R) SC showed extensive oil reserves on our eastern seaboard and gulf of Mexico that would lower our demand for Mid East oil by a large margin.
at 15:20 on July 15th, 2008
BigT, I like this story. It's good stuff.
at 15:24 on July 15th, 2008
BigT, I like this story. It's good stuff.
at 15:26 on July 15th, 2008
It would only make sense the shares would drop without an ounce being tapped. This market rides up and down based upon future assumptions, with the traders being drawn to what they see as the highest payback. When more oil looks to be forthcoming they will abandon the investment post haste to find the next most profitable thing.
As for how much the drilling will ad to the market, those who left first and fastest don't know. Being so skittish at this point my guess is they are a bunch of Chicken Little type investors, the type who ultimately make it easier for those with more experience who are in it for the long haul.
Oh, and none of this is meant to argue with what you have said... I am just making an observation.
at 18:59 on July 15th, 2008
Yes, your up there in the windy city... futures markets are the order of the day. Good comment
at 15:47 on July 15th, 2008
I couldn't disagree more. There is not enough oil in our off-shore reserves to last us one month. And that is including the Alaskan regions. The huge estimates (800 billion barrels i think is the new Bush Neo-Con estimate) are made by their own scientists. Private (non-partisan) geological surveys have estimated the maximum amount of recoverable oil to be around 4 billion barrels. That would last the city of New York for about three weeks.
Be sure to know who is telling you how much oil is recoverable. In the most newsworthy examples of the last year, all the estimates are comming from oil companies, and friends of them.
at 16:10 on July 15th, 2008
we can all agree that Bush's announcement was helpful because it encouraged the market to expect an expansion in supply, and drilling itself will obviously be a temporary solution, as BigT points, out but how long will "temporary" actually be? Might it be an extremely short period of time? Does anyone have any stats showing the amount of recoverable oil (and information on where the stats come from)?
at 19:02 on July 15th, 2008
Your numbers are inaccurate. Scientists are not all Neo-Cons
at 10:55 on July 24th, 2008
Your numbers are incorrect; therefore quit with the mindless drone of the democratic mantra. There is enough oil for 50 years out there. Canada realizes it. Why don't you?
at 16:05 on July 15th, 2008
Do you even read what you write Beezer? Using your assumption that there is "only 1 month of oil" on those regions, why then is Bush and the oil companies pushing to open them up? It costs these companies millions a day just to move the rigs in place to drill....for 1 month? If the oil companies though there was only a small supply there to drill, they wouldn't want it as badly as they do.
The oil companies obviously think there is a lot of oil there or they wouldn't want it opened up so badly. I say..open it up, drain it for all it's worth. In the mean time use the money made off of the oil sold there and work on alternatives. The oil companies are spending billions a year to invest in alternatives as they know better than anyone that oil will run out eventually.
Using your own logic Beezer, you don't make any sense as is typical for most Liberals.
at 16:39 on July 15th, 2008
It is possible to make comments that disagree with another without engaging in ad hominem arguments. While this place is far from perfect and name calling has occurred it is not the norm. Please help us keep it that way.
at 19:07 on July 15th, 2008
Do not generalize, please! The argument is on oil drilling, supply and demand, and speculation, not whether liberals or conservatives are smarter.
at 21:53 on July 15th, 2008
I love that you use "liberal" like it's a dirty word. Ya, after 6 years of conservative control the country is in great shape... i don't think people are looking down their noses at "liberal" ideas any more. Liberal conservation, smart government regulation, and clean energy research would have kept us out of this problem.
And I think you make the mistake of substituting your version of "logic" for actual facts. The oil companies want the leases because owning them increases the company's value. Yes, the deposits aren't large in the grand scheme of things (world supply), but they're still worth tens or hundreds of millions of dollars.
The government's own study says there's not enough oil in off-shore drilling to help lower prices till 2030, and even then it's contribution will be "insignificant"
http://www.eia.doe.gov/oiaf/aeo/otheranalysis/ongr.html
And by your "logic", if there's so much oil to be had then how come the oil companies aren't drilling on the 68 million acres that that they've had leases on for years?
http://www.9news.com/news/article.aspx?storyid=95761&catid=339
at 17:21 on July 15th, 2008
BigT, I like this story. It's good stuff.
at 17:24 on July 15th, 2008
BigT, I like this story. It's good stuff.
at 17:31 on July 15th, 2008
Not far enough. Traders? Speculators? there is speculation they are the Saudis. Saudis taking in more than 3 times as much this year as last. They'll back off in hopes of getting us NOT to drill more, build more refineries.
at 19:09 on July 15th, 2008
And if the Saudis do that Rene, everyone will say the crisis is over and not drill or build refineries and we are back to the cycle all over again. you nailed it right at the source.
at 19:24 on July 15th, 2008
Whew. I'm so relieved that the price "plunged", and now is only $136 a barrel.
Oh. My. God. I have a great idea. For the next PR stunt, Bush should walk over a pool of oil, kind of like Jesus but with oil instead of water.
at 21:16 on July 15th, 2008
BigT, I like this story. It's good stuff. Wow I can't believe the effects were so immediate.
at 21:42 on July 15th, 2008
The weakness of your argument is clear from the fact that you are basing it on one day of trading. Oil prices fluctuate every day, and to try and draw definitive conclusions from one day is ridiculous.
As for the "vast" oil reserves, Bush's own Department of Energy says that it will barely effect the price of oil
http://www.eia.doe.gov/oiaf/aeo/otheranalysis/ongr.html
The reason the oil companies want these leases is because it increases the net value of their assets, even if they don't drill -- yes, the amount of oil is insignificant in the grand scheme but it's still worth enough to add tens or hundreds of millions of dollars to the comapnies value.
at 22:06 on July 15th, 2008
BigT, I like this story. It's good stuff.
at 22:15 on July 15th, 2008
T:
Great Comment Activity!
Drill, Drill, and Drill Again!
Bring ALL other energy options along, everything is on the table, because ENERGY is FREEDOM!
Energy is power, energy is security, energy is what made America the power it grew to be over the last full century ... and that would be in spite of having one hand tied behind its back (due to the greens and the socialist left) JUST to make it fair.
Let's get serious and let's get back to the business of creating ENERGY!
Regards,
Ed