The price of oil reached a 30 month high of $108 per barrel on April 1.
Almost as if a signal was given, a host of articles appeared recently all saying exactly the same thing.
You Can’t Drill a Way to Cheap Gas
We can’t drill our way to energy independence
The United States can’t drill itself to energy independence
In 2006, Obama said of oil dependence:
We cannot drill our way out of the problem.
All assert that increasing domestic oil supply will have no effect on prices and cannot solve our dependency on foreign oil. All are entirely wrong.
Recently Stephen Hayward of the WSJ described Barack Obama’s oil policy as “incoherent.” That’s being kind.
The US has loaned Petrobas of Brazil $2 billion to drill for oil and Barack Obama recently granted it a permit to drill in US Gulf waters even though Obama has largely shut down US Gulf oil exploration. Obama then told Brazil’s President Dilma Rousseff
“We want to help you with the technology and support to develop these oil reserves safely, and when you’re ready to start selling, we want to be one of your best customers.”
You might be wondering “Why don’t we do that with domestic oil companies and create more jobs here?”
I am.
In 2007 the US imported 3.6 billion barrels of oil which would cost over $380 billion at today’s prices. You might be wondering “Why doesn’t Obama want to keep that money here in the US?”
I am.
Ironically, while Obama claims to want to reduce our foreign oil dependence by one third over ten years his policies are focused like a laser beam on securing and subsidizing additional sources of foreign oil.
Brazil is oil independent. In 1980 Brazil imported 77% of its oil and today imports none. How did they do it?
They drilled their way to oil independence.
Over the last two decades Brazil increased its oil production 876%, mostly from offshore oil production, even as consumption doubled. For some mystical reason Obama, Democrats and the authors above deny that increasing oil supply will result in lower oil prices yet Obama is considering tapping into the Strategic Oil Reserve, which would increase oil supply and guess what?
Lower oil prices. Temporarily, that is.
Obama asserts that it’s in the US interest to seek oil from Brazil:
But President Obama said Saturday during his visit to Brazil that an energy partnership with the nation will offer major benefits for the United States. Obama, in announcing a “Strategic Energy Dialogue” with Brazil, noted that the country has nearly twice the oil reserves as the United States and lauded its stability compared to some other oil-exporting countries.
(emphases mine)
What Obama is not telling you:
BRASILIA (Reuters) – Al Qaeda operatives are in Brazil planning attacks, raising money and recruiting followers, a leading news magazine reported Saturday, renewing concerns about the nation serving as a hide-out for Islamic militants.
Utterly, totally incoherent.
DrJohn has been a health care professional for more than 30 years. In addition to clinical practice he has done extensive research and has published widely with over 70 original articles and abstracts in the peer-reviewed literature. DrJohn is well known in his field and has lectured on every continent except for Antarctica. He has been married to the same wonderful lady for over 30 years and has three kids- two sons, both of whom are attorneys and one daughter on her way into the field of education.
DrJohn was brought up with the concept that one can do well if one is prepared to work hard but nothing in life is guaranteed.
Except for liberals being foolish.
I think this is the time of the year when all the blends of gasoline come out.
Each region of the country gets a different blend.
Ethanol is involved, too.
No, that is not cheap.
It costs more to produce custom blends than to mass produce uniform ones for an entire country.
And add to that there is the ethanol subsidy.
So we’re putting our food in our gas tanks, increasing the price of food while also artificially increasing the price of gas.
Remember, it was food price hikes that were the start of all of the fighting in the Middle East.
@DrJohn:
Larry just contradicted himself with that statement.
He says, in post #31;
He is basically stating that even with an increased domestic production, increasing the total world’s supply, that there will be little noticeable difference in the price we pay for gas at the pump.
Then, in #41;
We see this is the case daily, whenever something happens to upset world production, that gas prices jump, and whenever OPEC decides to increase production, prices drop. But, of course, a U.S. increase in oil production doesn’t operate within the same laws of supply and demand that the rest of the world works in, at least according to Larry.
Which is it, Larry? Either an increase in production will have an effect such as that you posted in #41, or the economic model changes dramatically based on the fact that it’s U.S. oil, and little to no effect will be seen.
@johngalt: I know, John. I was painting him into the corner of a logic box.
@openid.aol.com/runnswim:
But Larry, let us forget all the “drill baby drill” talk about lowering our gas prices for a moment. Please explain to myself, and everyone else here, why it is a good idea to give companies from Brazil money to drill at will, while hamstringing our own domestic companies, hampering our own domestic production capabilities.
Obama himself says that he hopes America will become one of Petrobas “greatest customers”. Why should we give them money, both in loans now, and in consumer dollars later, rather than build up our own capacities, keeping those consumer dollars here, to work in our economy?
@johngalt (#52):
I haven’t contradicted myself at all. You have to read my prior post about oil being like electricity. The capacity to utilize and store oil is inelastic. With overproduction, the world’s refineries are saturated. With no effective storage capacity, overproduction leads to price drops. This is why Saudi Arabia (and the rest of OPEC) takes wells out of production. To keep oil prices up. When there is a temporary shortage (e.g. the Libyan crisis), they have the capacity to increase production and moderate price increases.
The USA does not have the same excess capacity. Let’s say we increase production by 25%. This will take ten years to achieve, by the way. This increases world oil supply by 2.25%. This would have a negligible effect of price of oil at the pump, because, over the same 10 years, more refineries will be built to soak up this extra oil. So the only benefit the world would see, price wise, would be marginal — and it would benefit the other 80% of the world (e.g. China) as much as it benefits the USA.
The reason oil prices are so volatile and subject to such extreme fluctuations by short term changes in supply is because of the short term inelasticity of refineries to absorb oil. With no effective storage capacity (analogous to grain elevators), short term fluctuations in supply will have large effects on prices. But the US could increase production by 2.5% over ten years and this wouldn’t do a blasted thing to prevent future price fluctuations, as world oil levels will always fluctuate in response to one crisis or another and US domestically produced oil will always be sold at world market rates.
– Larry Weisenthal/Huntington Beach, CA
Once again- Clinton said this exact thing in 1995. Had we acted then, things would be very different now.
@openid.aol.com/runnswim:
That’s why it costs $108 a barrel now yet finished 2008 at $35 a barrel?
Inelasticity?
What makes the price go up, Larry?
http://www.economist.com/node/18285768
Supply and demand.
Expectations.
Just what we’ve been saying.
@johngalt
Way back in the 1970s, a Newsweek columnist (now dead) named Stewart Alsop wrote that he thought it would be a good idea for us to burn up everyone else’s oil first and then save ours for the future good of our nation. I always thought that there was a certain merit in this argument.
I like the idea of making safe loans to develop oil production elsewhere. We benefit exactly the same, price at the pump wise, from oil pumped in Brazilian waters as we do from oil pumped in Alaskan waters. We make loans, collect interest, and increase oil supply without the environmental risks to our own shores. What a deal! Plus, our oil will always be there. It ain’t going anywhere.
I keep saying that there are valid arguments to be made from both sides. You guys are making some perfectly valid arguments here. I’ve offered a couple of counter arguments and more could yet be offered. But for the purposes of the present discussion, the only issue that I continue to argue is the fact (not conjecture) that increasing US domestic drilling will have an utterly trivial impact on the cost of gasoline at the pump (and on the cost of diesel, heating oil, and jet fuel).
By the way, thanks for the correction on Chinese oil consumption vis a vis American oil consumption. My statement that China was currently consuming as much oil as the USA was incorrect, although Chinese oil consumption is growing at 7.5 times the rate of US oil consumption and, by the time that US oil production was increased enough to make even a small dent on world oil prices, Chinese consumption will be right up there with ours. http://www.iags.org/china.htm
@DrJohn (last post): With regard to supply and demand. Yes, of course. Precisely. That’s why US oil production will always have a minimal impact on world oil prices. Our supply will never be more than a small fraction of the world’s oil production. Short term price spikes and falls are related to inelasticity of refining and storage capacity. I explained this previously. Increasing US oil production will have a negligible impact on supply and will do nothing to make refining and storage capacity more elastic, so that there will always be short term price spikes and falls. And, once again, there will be no unique benefit to America in terms of pertroleum costs at the consumer level — 80% of the price benefit will flow to the rest of the world. Which is why it makes all the sense in the world to encourage other nations (e.g. Brazil) to contribute their fare share of their natural resource, rather than having the US do all the heavy lifting, oil-reserve-exhaustion-wise.
P.S. Hey guys, it’s been fun and stimulating, but I’ve gotta actually get some work done today. So you get the last word.
– Larry Weisenthal/Huntington Beach, CA
I’ve seen oil delivered to a refinery from a hole that was spudded 9 months earlier. 4 loads of oil priced at 100$ a barrel buys you a new truck. Does it pay? Awesome return. If it takes 17 years as the precedent says, he is , of course, full of it.
A productive drilling program and a sizeable pipeline gives an outstanding boost to any economy.
Compare that to environment wackos who want to follow horses with shovels, and want to work in the wheat fields together.
A barrel of oil is the equivalence of 25,000 hard earned man hours. This argument is a no brainer.
@openid.aol.com/runnswim:
But you did, regardless of how your statement is read. And, the law of supply and demand also dictates that when supply is increased, prices drop, and with that drop in price, demand will increase as well, eventually leading to an equilibrium, and it will be at lower prices than before.
True, however, an increase in domestic production will lead to lowering the percentage of production of other countries, and in so doing, lessen the impact of sudden drops in production like Libya. Will that not reduce the amount of price increases we see then, and in so doing, affect U.S. fuel prices at the pump? I believe it will.
The U.S. is currently operating at near 1Million barrels/day under it’s capacity. In the short term, and until demand increases, the glut would lower prices, however, when demand rises, we have capacity to supply it. And as for future price fluctuations, I believe you are incorrect. With more oil production, in terms of percentages, within borders of countries where production is stable, the percentage of oil production subject to those disturbances decreases. It’s effect on world oil futures would be less as well, resulting in smaller price jumps than we experience now.
DrJohn, one refreshing fact is that the next PRESIDENT will have these OIL RESOURCES OPEN TO BUSINESSES
and there is no 2 ways about it, the economie will gain It’s recovery all over the UNITED STATES,
AND the BIG COMPANYE will come back, to no distribution of WEALTH by GOVERNMENT ,
and the AMERICANS WILL START TO WORK AGAIN with the PRIDE for their employers
which will regain their STRENGHT AND HOPE IN THE USA CREATIVE MARKET, THAT IS SUPERIOR THAN ANY WORLD MARKET,
and the PEOPLE WILL UNITE AGAIN, INSTEAD OF BEING DIVIDED BY THIS
GOVERNMENT AGENDA TO HURT THE AMERICANS IN EVERY LEGISLATION
THEY CAN THINK OF.
@openid.aol.com/runnswim:
Then the question really becomes one of what is best for the country right now. The way our economy is, an increase in domestic production would be welcomed greatly right now(and yes, I know most estimates are ten years from start of drilling to production). In my mind, that outweighs any arguments made to the contrary about the effect on our individual consumer cost at the pump, whether it’s no, or negligible effect, like you claim, or a noticeable effect like I believe.
In that sense, I submit that we should begin drilling immediately, opening up different public lands all around the country, rather than relying on small-time private businesses like is happening now.
@ilovebeeswarzone: Let’s hope so, Bees!
johngalt, hi, they estimate 10 years, WHO DID THAT ESTIMATE? and when?.
THAT tells me we can do it faster, IF we put our mind and efforts to produce,
we have the manpower , the resources and the tools wich have come up to date,
since that ESTIMATE,for sure, we can beat the odds, DIDN’T AMERICANS DO BEAT THE ODDS ALL THE TIME? SINCE THE FIRST AMERICANS CAME ON THIS LAND OF HOPE AND FREEDOM ?
@openid.aol.com/runnswim:
Golly, I just don’t understand how an interruption in supply can affect inelasticity of refineries…..
openid.ayol.com/runnswim yes, but STEWART ALSOP did not lived to hear
ABOUT THE BACKENS DISCOVERY, he surely would have reconsider his statement,
bye
A bit of personal experience for all of you; I work for an oil company and I don’t know anything about oil, but every time we have a large oil find we do hirings in every department and the more finds we have, the bigger our workforce is. A year ago we laid a huge part of our employees, mostly people with university education and sent the jobs overseas. Its really important to give the gulf drilling to an american company and take off the environment restrictions.
Bees from what I understand canada has a huge amount of oil, I think they are even building a pipeline from canada to the US. So that trade relationship would have to go both ways.
Zac, yes, likely Oil Guy From Alberta mentoned, there is a lot of mutual trade between them, and they have many AMERICANS working there also.
Zac on your 25, what is the high flow toilet said to her new owner?
bring it on.
I had a hard time to type it, because I was laughing to much of my own joke,
I just made it up.
@Hard Right: You are so right. I hardly ever argue with them anymore since like you say they can not understand a rational argument when they arrived at an irrational conclusion.
@openid.aol.com/runnswim: Larry, I do not know how they store oil in Long Beach, but in Colorado, they store the oil in the ground. When the price goes up, they pump more. That is a typical way they do that. There are also companies who lease dry gas wells in which they store natural gas until it is needed. Oil is not like electricity at all.
@randy: There is not nearly enough stored oil to serve as a buffer against shortages caused by the various disruptions in supply which are always either arising or threatening to arise. Even in the case of Saudi Arabia, it takes a very long time to ramp up production. Oil is very much like electricity. It is a “just in time” commodity. It can’t be warehoused, in the fashion of grain. So threatened disruptions in the supply chain have an exaggerated effect on price. But increasing world steady state production by a couple or a few percent (e.g. through a Manhattan project effort to exploit every US drilling site possible) will have a trivial effect on the price of gas at the pump and will do nothing to buffer future oil price gyrations.
– Larry Weisenthal/Huntington Beach, CA
johngalt, hi, on 63, you know that small time private businesses could save the day, surprisingly
in a time of URGENCY, as we have seen in any kind of them producing any items, came out in front of big ones in emergency help of any kind, and I would beleive the same for small time private oil business,
of course bigger company are needed for the consumers as a whole,on a long running suply.
bye
@Randy:
Randy, we in Long Beach have many oil storage facilities.
At our Port alone we can store over 2 million barrels.
We also have 42″ pipelines that bring oil straight from tankers to refineries, bypassing the Port storage.
At just one of those facilities we can offload 150 oil tankers in a day.
Put another way, just one facility with a 12″ pipeline can offload 12,000 barrels of oil an hour day and night.
Our other facilities have 42″, 24″ and some have multiple 16″ pipelines.
But that’s not all.
Our Port sits on a pool of crude!
We have several pumping facilities bringing that to the surface and into refineries every day.
Then there is the Port of Los Angeles, right next to the Port of Long Beach……
About a two and one half hour supply for the US and a one day supply for California.
@openid.aol.com/runnswim:
Larry, just a quick trip around the web has turned up these:
The Cushing Tank Farm – 46.3 Million barrels of crude
NuStar Energy L.P. owns 60 crude oil and intermediate feedstock storage tanks and related assets in Texas and California, with an aggregate storage capacity of approximately 12.5 million barrels.
@johngalt: In the first place, 9 days’ worth of oil is a pretty insubstantial amount, for purposes of moderating gyrations in world oil price. In the second place, this is not oil on reserve at the points of need (refineries). In the third place, those 9 days worth of oil aren’t going to be sold to Americans at the purchase price of that oil; it’s going to be sold to refineries at the then current world price of oil.
There’s really no way around it. Unless you nationalize oil, it’s always going to be sold to us at the going world market rates. And 80% of the price benefit from pumping our oil is going to go to the rest of the world. And the price benefit is going to be minuscule.
We can and should be arguing the drill baby drill issue with regard to a number of perfectly valid considerations. Only those considerations are not sexy to voters, who may well support drilling in environmentally sensitive areas and off the continental shelf for the purpose of avoiding $5 per gallon gasoline but not for esoteric considerations such as balance of payments. The one consideration which is invalid is the gasoline price consideration, which will be impacted to a trivial extent by whatever drilling policy is pursued.
P.S. With regard to NIMBYism, Newport Coast Republicans, here in the good old O.C. may support drill baby drill in theory, but wait until you try to anchor an oil platform off their coast. At the personal level, virtually all of us are NIMBYs. It’s purely personal and not political.
– Larry Weisenthal/Huntington Beach CA
@openid.aol.com/runnswim:
I was not making a point that here in the U.S. we have huge storage capacity. My point is that the capacity we have is not insignificant. The amounts in storage at any one time depend upon a myriad of factors, including recent deliveries, strategic oil reserve amount, refinery shutdowns for maintenance or other problems, oil in refinement process currently, and even whether or not there is a “travel” holiday coming up. I did not suggest that it is anywhere near enough to prevent oil price spikes due to shortages elsewhere in the world. It was simply posted as a fact.
I’ve thought some more on this, and have to disagree with you. Although we currently consume about 22-25% of oil produced, depending on which publication you are looking at, so that the left-over percent would also benefit, there is an added benefit that other countries could not claim. That is the dollar amount returned to our own economy as the result of producing more domestically.
That happens regardless of the industry. Liberals off Cape Cod screamed bloody murder when a proposed off-shore wind-farm was in the works. And how many people complained when nuclear plants were planned for certain areas. The “Not In My Back Yard” crowd crosses all political lines, and invests itself in people from all walks of life.
Kind of in agreement statement: We need to be discussing the economic benefits to our economy from dollars returned back into the economy if we increased domestic production.
@openid.aol.com/runnswim:
The existence of a stable supply within the US and the mere possibility of the US being oil independent would drive oil prices way down.
another fact that is important to keep in mind is, the CONTROL OF PRICES AND SUPPLY,
the ARABS HAVE ALWAYS CONTROL THE WORLD OIL SUPPLY,AND FELT GOOD TO RAISE THE PRICES ANY EXCUSE FIT THEIR AGENDA, EVEN THE LIBYA INCITING MUST HAVE BEEN A FACTOR, AS THEY, after all theses times know best which button to press; so we would be independant from that
POWER HANGING OVER YOUR HEAD ALL THE TIME, and our consumption would help keep the over taxed AMERICA at a reasonable rate, because that would bring money to the GOVERNMENT, WHICH WOULD NOT NEED SO MUCH AGENCYS AND EMPLOYEES PAID BY THE PEOPLE, AND NOT FOR THE PEOPLE’S INTEREST