- A look back at the Iran War to come
- Ice Cream or Soap?
- A lot of fun with advertising
- much much more?
First of all it will take years to get the drills set up. Then it will take years from the time they actually start drilling before it has any impact on the price of gas. And then finally there's a ton of land leased to oil companies that they aren't bothering to drill yet because the price of oil isn't high enough to make it worth their while.
So why the big push for more oil leases now? I don't just mean that to be contentious but there must be some upside for somebody and I can't figure out what it is. I know McCain changed his mind about this after getting some nice donations from the oil companies but why do the oil companies want the ability to drill in more places when they aren't drilling in so many places already? Are they just afraid that somebody else will get the rights to use that space?
It seems like the whole thing is either a nonsense wedge issue like Gay Marriage was in 04 or there's some financial gain for somebody but it doesn't seem that divisive of an issue and I don't see who makes money on this.
Can somebody please explain this?
2 comments:
- It's an election year.
- The horrible 'gas tax rebate' idea failed miserably; this is Plan B.
- It's an issue that they can expect Obama won't agree with them on, so they can try to run against him with it.
- Give-aways to oil companies are good for rich Republican politicians and their contributors.
- Said give-aways are less likely to happen under an Obama administration, so get it done now, or get the base fired up about getting McCain elected instead.
- You're right -- it's a nonsense wedge issue, not a real solution. Remember, they already tried to use immigration as a wedge, too, and failed, and that was even a better wedge. They got nothin'.
President Bush lifted the *executive* ban on offshore drilling - which would not allow it since there is also a legislative ban - and the price of near-market crude dropped $16/bbl on the New York Merchantile Exchange - the reference market for crude oil for most of the world.
Part of what is driving the price up is a speculative bubble - hedge fund guys buying oil because they think they will be able to sell it before delivery for much more than they bought it for (since they don't have a damn place to put a few million barrels of crude.) Right now there are a few people taking a bath on short contracts, since just a few weeks ago the price of crude was $30/bbl more than yesterdays NYMEX close.
Not all speculative hedging is bad. Southwest Airlines has done very well at it which is part of the reason they can still offer the kind of fares that are driving other airlines crazy. The guys who are just buying commodity chips without a real understanding of the market dynamics are another story - and are part of why the current bubble exists to the extent it does. It's similar to the housing bubble in the Silicon Valley before the first tech bubble collapsed. Most of the money spent exists only on paper - in the tech bubble it was unvested stock options securing mortgages, in the oil bubble it's unrealized paper gains on oil that may not even have been pumped out of the ground yet. When the options vested, some of them weren't worth anything other that as a collectors item in years to come, when the oil is pumped crude prices may have fallen closer to the real economic value in a 'pure' market.
It's easy to spend these 'fake' dollars - and that makes it very inflationary. Think about the stock option case in your own life - you're given stock options for the new job, in addition to a wholly adequate salary and other competitive benefits. You're doing well on the salary alone, it's fair compensation, you've got your needs and basic wants covered. The stock price skyrockets and you convert your options and cash them out. If what you really want is more than you think the real economic cost should be - well, this is found money so who cares if you spend a little more of it. If you're bidding on a limited supply, and you really want it, and you have the paper to cover it above and beyond what you thought you would receive...hey life's short, you're covered with the salary, I'll get in a limited bidding war and chase a couple of the lower capitalized dreamers out of the market. That's how homes and home furnishing prices got so out of whack in the tech centers... the bubble drove and sustained wild inflation - a positive feedback loop - until someone woke up and hollered about how far out of whack it was.
There are a large number of other factors driving the market up - think China and India moving to petroleum fueled industrial economies to start with - but the realistic economic models say the price should be closer to $75/bbl rather than the current $115/bbl. The bubble bursts when the hedge guys realize they could get badly hosed and try to cut their losses, trading down and out of the crude markets.
There are a number of reasons why current leaseholds aren't being exploited. The biggest of them is that it's a bitch to get all the clearances to actually start exploitation, even when you own the exploitation rights. You still have to get permitted - which will take lots of time, lawyers and acrimonious public meetings. Then you need to get it off your leasehold and to the purchasing middlemen - even if you are the purchasing middleman. That involves permitting a pipeline, or getting suitable ground transport routes permitted. More lawyers, more time, more public meetings. About the time you get that straight, someone claims to have seen a thought-to-be-extinct albino willy goshawk nesting on your leasehold so there are more holdups getting drilling started.
In a number of cases it is just a question of the amount of effort and expertise you need to apply to get the oil out of the ground vs the price you think you can get for it once you start pumping and how long you think you'll be able to pump. If the economics don't work, you don't start.
There are a number of boneheaded rules about the economics of selling oil from the production fields to the refineries to the final retailers as well, most of them unintended concequences of the breakup of Standard Oil back in the bad old monopoly days you may remember from that history class back in High School. There are actually rules about how Big Oil has to operate in the states that artificially add costs. Unscrewing them is politically unfeasible (the republicans would take it in the backside from the democrats, the democrats would take it in the backside from their base) and would just shift the foolishness somewhere else - but there is a reason why ExxonMobil owns fewer than 3% of the locations with their signs out front and is working on owning fewer every day.
The shorter answer is that it's psychology on a couple different levels - but economies are largely psychological to begin with. We all agree that these special pieces of paper are a fair exchange for our time at work, and people we want things from decide how many are a fair exchange for thier goods and services.
It works on the politics level - something they can say they will do during election season and may never have to act on - it works on the markets level by disrupting the current assumptions on long term supply, and it works on a stability level as well. Let's face it, most of the places there is easy to extract oil, there's a lot of chaos too - Nigeria, the Middle East, the crazier parts of South America...having American supply in the market means there will be some supply you can count on being brought to market regardless of which way the wind blows in our politics.
...of course the largest irony is that gas is used in car engines because it was a waste product in the petroleum cycle - leftovers from the 'useful' stuff we were extracting from crude oil at the turn of a different century...
The truth is the candidates are saying it because they think they can buy some votes with it - promising to 'fix' your gas bill problem. Essentially, they are repeating lies their handlers have told them... but there's probably someone with a little economic understanding that first whispered this in a meeting.
Being politicians, well, they'll Eff it up if they actually attempt to do anything about it.
(No, I don't work for Big Oil.)
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