Friday, June 20, 2008

Drilling Now Won't Help, Or Will It?

Let's look at what a oil futures speculator looks at every day. They try to see into the future at what the supply of oil will be and what the demand will be, 1 year, 3 years, 5 year or even 10 years out into the future. The prices they set are what they think the price will be at these future times. They write contacts with the producers to buy their oil at a certain price, thinking it will be worth that or more. So anything affecting the supply or demand in the future will affect the price they set today. A great example of that was when the NYT came out with a rehash of a news report about the war games held by Israel. The speculators saw this last week and saw it for what it was, a practice for attacking Iran's nuclear facilities. So they saw the possibility of the supply of oil going down in the future, Iran strikes back at the Straits of Hormuz and such, and boom, the price of oil goes up $15 in 2 days. Then, today, the NYT comes out with the news that the US says that the war games where just what they thought, and again, oil spikes. We hear all this chatter about how the oil speculators are driving the prices up, but they are doing what any commodities trader would do, they try to guess the future, and to them it must look very bleak.

Here's an example of speculating on a more personal scale. Let's say you love creamed corn, you just can't live with out it, you have it at every meal. Now let say the cost of a can of creamed corn is $1.00 per can. You go through one case per week or 24 cans. Now, in the news you hear that the corn corp has been devastated by hail and flooding and the corn corp will be 50% less this year. You are beside yourself, what will you do if you can't get your creamed corn. Well, someone comes to you and says, "you like creamed corn, I'll make a deal with you. We'll write a contract that states I'll sell you the right to buy creamed corn at $3.00 a can 6 months from now." You think about it and conclude that creamed corn will cost more than that 6 months from now so you sign the contract. There, you've just become a speculator on creamed corn. Because you think it will cost at least $3.00 or more 6 months from now, you looked into the future and saw that supply will be less, you were willing to bet that that price, $3.00, will be a bargain.

Now, lets go ahead one month and you find out that the FFA discovered a way to bring in a corn harvest in half the time, they discovered new corn supplies. We had this ability in America for years but the government just now lets us go forward with it. Now you're thinking that your $3.00 contract for creamed corn is over priced and you want to sell your contract. You'll have to take a loss but you'll sell at $1.50.

Translating this to oil, as if you weren't doing so already, if we open up, and even "invest" some of our tax dollars in developing our oil reserves in the very near future, the speculators will see that the supply of oil will increase and that will drive down the price per barrel. Even if will take 4 years, as many of the drilling companies think it will, or even more as the Dem's in Washington spout, the speculators will see this as a increase in supply and lower the price per barrel. Let's face it, 4 years is not that long, I mean what should you tell your college bound student, "you can go Tommy, but it really won't do any good now to you income, that's far off in the future." The Saudis said they'd increase by 3 to 6 million barrels a year more and the price fell, just by them saying so. What if we can produce, and we can, 100 million more barrels a year, what would happen to oil prices then. We have over 80 billion barrels of oil that we know of waiting to be pumped, or mined and refined. All we need is something concrete from Washington, a bill passed, and we'd see the benefits now.

We have the ability to be independent of middle east oil in 20 years. If we passed laws and made everyone aware of our goal, how much more oil do you think the OPEC would pump to keep down the cost so we would move slower or make it so we couldn't do it for what the price of a barrel costs. They'd pump so much to drive down the price, we'd see the oil price dump and prices at the pump, for a little while, fall dramatically.

I say we do this; use up their oil, then start using our own when they run out. But we must be ready to drill, develop and refine as soon as the world sees OPEC starting to run low. We have enough oil in off-shore deposits, oil shale and coal to liquid technology to supply us and much of the rest of the world with black gold for over 100 years. It's just not the light, sweet, easy to refine stuff that the Saudis have. But theirs won't last forever.

We are the greatest nation on earth, and we've been blessed by God to live in a land of bounty. We must survive and thrive to promote freedom and liberty around the world for as many people as we can. This is the calling of our nation, and we must be good stewards of the blessings God has provided for us to carry out this calling. Using our resources wisely, natural and technological resources, we must show the world's despots and radical leaders that there is one thing all people are given in this world by their creator, Free Will, the ultimate freedom. They will see that living as we do, a free people, a free nation, will provide their people with the ability to become the best that can be and use the gifts that God has given them. I know President Bush sees this and I hope that more and more Americans see this as well.
ps: Here is a great example of what I mean, this article from NRO tells the story of how this will work, just pass a law Congress and we'll have lower gas prices very soon after.

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