Petition to Allow Oil Drilling in U.S.

American Solutions is asking Americans to sign a petition to encourage the Department of the Interior to allow drilling for oil and gas in the U.S. on federal lands and offshore. They are threatening to hold up the decision process until 2012! If enough people respond that we should drill now, there may be a chance that this delay will not be politically feasible. From their website, with a slight modification of the first sentence:

Sending a letter to the Department of the Interior is the next stage of the "Drill Here, Drill Now" campaign. Here’s why:

• The Minerals Management Service (MMS), an agency within the Department of the Interior, chooses when and where we can drill for American energy through a public process called "Notice and Comment."
• MMS is currently deciding whether we can drill offshore during the years 2010-2015. If an offshore area is not made open to drilling, there will be no drilling there until at least 2015.
• What MMS ultimately decides is influenced by input from the public, and the deadline for submitting comments is September 21, 2009.

The petition reads:

I am writing in support of the development of more domestic oil and natural gas resources off our coasts by allowing all of the 31 lease sales proposed by MMS to be kept in the OCS leasing program for 2010–2015.

During the summer of 2008 when gas prices went over $4 gallon, the American people spoke loud and clear in favor of developing the energy supplies that have been off limits to us for too long. Just because gas prices have gone back down does not mean we’ve changed our minds.

It’s important that we begin to develop alternative sources of energy, but oil and natural gas will continue to be an essential part of our energy future for decades to come. We are currently sending billions of dollars overseas to meet our energy demands, even though we have more energy resources than any country in the world.

MMS should make access to all OCS areas a high priority for our nation to improve our energy security, grow our economy and generate local, state and federal revenue.

In terms of our energy security, for over 20 years the federal government denied access to an estimated 18 billion barrels of oil and 77 trillion cubic feet of natural gas in the OCS. The resources expected to be found in these areas represent enough natural gas to heat 15 million households using natural gas for more than 77 years. And, it can produce enough oil to power over 20 million cars and heat 956,000 households for 30 years. These resource estimates may be conservative since the areas in question are largely unexplored, but, if given access to them, the industry can utilize today’s sophisticated technology to further define and tap those domestic resources.

In terms of our economy, opening all available domestic resources to safe and environmentally responsible development will significantly boost U.S. supplies of oil and natural gas. One study in particular indicates that the development of these areas can add 160,000 thousand jobs in the oil and natural gas industry.

Lastly, in terms of revenue, the federal government collected over $23 billion from the energy industry in 2008 which was distributed to state, local, American Indian and federal accounts. Additionally, one recent study indicated development of the resources on federal offshore areas and onshore lands that had been off-limits for decades could generate $1.7 trillion in revenues for federal, state and local governments.

For the sake of our economy, our energy security, and our government’s balance sheets, the next OCS plan should keep all the 31 lease sales in the 12 areas proposed for exploration and production with no artificial restrictions.

As I have noted before, the best practical step to protect us from oil and gas price spikes is to have as many sources of these fuels as possible and as many substitutes as possible, including coal and nuclear and any other economical and reliable sources of energy. Generally, the Obama and socialist-preferred energy choices are not economical and reliable. It is almost as though they are purposely trying to tear our economy and our civilization apart by depriving us of economical and reliable energy. Well, no, that is not quite right, because it is absolutely clear that this is what they are trying to do. Many sources of economical and dependable fuels abroad are a help, but that help is diminished by the fact that most foreign countries operate their oil industries through nationalized companies. The most valuable oil and gas with respect to the maintenance of our economy is that which we obtain in the United States.

It is true that we cannot and that we should not use only oil and gas from the United States. But our own sources do tend to stabilize the issues of availability and price despite being much less fuel than we need. Please do take the time to go to the American Solutions petition and sign it.

Reynolds - High Oil Prices Caused Worldwide Recession

Alan Reynolds is one of my most favorite economists. He has written another very good and very important article, It Didn't Start Here, which was published in the New York Post on 9 April 2009.

The recent G-20 meeting in London produced a consensus: The United States started and caused the worldwide recession. The United States should be humbled. Obama agreed. The Finance Minister of Germany, Peer Steinbrueck, said the Anglo-Saxon attitude in America and Great Britain had encouraged risky lending and investment practices due to "an exaggerated fixation on returns."

Reynolds says, "Hey, wait a minute folks, let's look at the data." Examine when industrial production first started declining in some countries. It began to decline in Canada in July 2007, in Italy in August 2007, in France in October 2007, and the Euro area as a whole in November 2007. Japan's production reached a peak in October 2007, though it had a one-month uptick in February 2008. The decline in the U.S. was in February 2008.

In January 2008, the OECD leading indicators were down from a year before by 4.1 points in Ireland, 2.8 points in Japan, 2.6 points in Korea, 2.3 points in Sweden, but only 0.8 points in the U.S. Stock prices are another leading indicator. Stock prices peaked in Japan and in the Euro area four months before they peaked in the U.S. and the U.K. in October 2007!

In the 4th quarter of 2008, real GDP was lower around the world than it had been 1 year before, but it had dropped by much less in the U.S. than almost anywhere else. The list is:

Taiwan, -8.4%
Turkey, -6.2%
Sweden, -4.9%
Japan, -4.3%
Singapore, -4.2%
Denmark, -3.7%
South Korea, -3.4%
Italy, -2.9%
Hong Kong, -2.5%
Great Britain, -2.0%
Germany, -1.7%
Mexico, -1.6%
France, -1.1%
U.S., -0.8%
Canada, -0.7%

So, how did the the failures of U.S. and British banks and financial institutions in September and October of 2008 cause the recession which had started in Japan and in Europe in January 2008?

The housing price boom and the low cost of borrowing in the U.S. and in Britain were problems, but they were also problems in a number of other countries. These problems developed later and many countries which went early into recession, such as Japan, Sweden, and Canada had had no housing booms. Reynolds points out that James Hamilton of the University of California at San Diego showed in 1983 that "all but one of the US recessions since World War Two have been preceded, typically with a lag of around three-fourths of a year, by a dramatic increase in the price of crude petroleum." Reynolds says the years 1946 to 2007 saw 10 dramatic spikes in the price of oil -- each soon followed by a recession. He also notes that in January 2008, he wrote that the US economy was likely to slip into recession due to the high energy costs no matter what the Federal Reserve did with respect to monetary policy.

The logical conclusion from this is that the U.S. was probably doing a whale of a job in diminishing the worldwide recession. Indeed, the dollar value of US imports did not start to fall until August 2008 and our purchases of consumer goods did not fall until September 2008. Strange that so many in the rest of the world are so eager to blame the US for this recession, including the very anti-American Barack Obama! It would be more logical to see the U.S. as the hero in these trying times.

Reynolds points out that Jagadeesh Gokhale, his colleague at the Cato Institute, noted that "the prolonged decline in exurban housing construction that began in early 2006 was a logical response to rising prices of oil and gasoline at that time. So was the equally prolonged decline in sales of gas-guzzling vehicles. And the US/UK financial crises in the fall of 2008 were likewise as much a consequence of recession as the cause: Recessions turn good loans into bad."

So, it would appear that part of the reason that existing home prices were shooting up was because new home building was becoming more expensive and few homes were being built, due to the energy crisis. The energy crisis certainly weakened the U.S. auto industry, which was making all of its profits and most of its income from SUVs, trucks, and large cars. When people were paying more than twice what they had been paying to fill their gas tanks, they became less likely to be able to pay more for home mortgages or to make payments on such new cars as they did buy. The banks came under increased pressure and the many high-risk loans that government had pushed them into became a real liability, albeit one exaggerated by the Sarbanes-Oxley mark-to-market asset evaluation requirement. Another gift from government.

So, what would a rational response be to minimizing such a future spike in energy costs, given that such spikes are the chief cause of recessions? For the U.S., it would be to allow oil and gas drilling in the Eastern Gulf of Mexico, as was approved by George Bush, but then immediately killed by Obama. It would be to open ANWR to drilling. A non-starter with our very foolish Obama. A rational response would be to sell off much of the excessive federal holdings of land in the western US and encourage companies to drill for oil and gas using modern good practices. When OPEC, which did cause the present worldwide recession, spikes prices upward, the US production facilities could run production at full output and hold down the price increases a bit in the U.S. This would help to moderate our future recessions.

What very irrational, shall we say, even insane policy are we following? First, the media and the government are blaming American banks and financial institutions for this recession, while claiming that this means they need to be be managed by our ever-perspicuous government. Second, they are using this to broadly blame Capitalism. Note that OPEC is a cabal of nationalized oil companies, which have nothing to do with Capitalism. Furthermore, Obama and his cut-throat gang are using this crisis as a means to cripple the fossil fuel energy industries in the U.S. One of the reasons the U.S. weathers the oil price spike caused recessions better than many other countries is because we have the world's greatest reserve of coal. We still use it to produce half of our electricity. Without it, we will be even more subject to the whims of OPEC and to the subsequent OPEC-caused recessions.

Do you suppose it is possible that the same impulse that causes Obama to bow to the King of Saudi Arabia, who is an important Islamic leader, is also causing him to make the U.S. itself more subservient to the Islamic Middle East for its energy supplies? Do not argue that Obama is going to replace our fossil fuel use with alternative energy sources. First, if it is done, it will be done by the free market far more than by government or any amount of community organizing and rabble rousing. Second, he is keen on destroying the American fossil fuel industries to the point that he is already doing this with no viable alternative energy replacements in sight. This man is a destroyer, not a creator.

Instead of characterizing this crisis as a financial crisis, let us remember to call it the oil crisis. We must also recognize that while OPEC has been primarily responsible for our post-WWII recessions, we can easily be the cause of future recessions by following policies designed to increase the cost of energy!

Alan Reynolds - Scapegoating the Speculators

Alan Reynolds has written another interesting article on energy and pricing entitled "Scapegoating the Speculators." After the Democrats tried to claim that the price of oil had gone up greatly because the U.S. oil companies were responsible for manipulating the price and most of the public did not buy into their arguments, they and others, including John McCain, began focusing more and more on an explanation that the price of oil was higher due to speculators. Alan Reynolds offers some very interesting perspective on this claim.

But first before considering his argument further, why is this an important matter? If, as the Democrats are saying, speculators are driving up the cost of oil or even if they are not but are perceived to be doing so, then the Democrats can address the problem of high gas prices by passing a law to control the speculators. This gives them more power over the financial markets and will result in more campaign contributions from financial people who will want to get on their good side. What the Democrats and their occasional Republican ally (John McCain in part) will not then have to do is to allow U.S. oil companies to drill for more oil and gas. As environmentalist extremists and Global Warming Alarmists, these people do not want to allow more oil and gas to become available. They actually do want the price of oil and gas to go up even more, but they do not want to be seen as the responsible party for that price increase. This is all about perception in the eyes of the public. The Democrats do want to manipulate the supply of oil and gas to make the price go way up, but they do not always, especially with an election coming up, want to be perceived as having done so.

So, what does Reynolds say? Commodities speculators are just as happy to bet that oil prices will go down as to bet that they will go up. They are trying to anticipate the expected relationship of oil supply to oil demand. If next month's oil futures contract is for oil at a higher price, then producers may slow their sales on the spot market and try to wait a bit for the higher price. [This is usually a good thing, since it helps to level out prices by keeping supply and demand on a more even keel.] Refinery's are likely to buy more oil now rather than in the future if the future price is expected to be higher, thereby boosting the present price. But, if this combination of reactions to the higher future price occurs, then oil inventories will increase. At this time, U.S. oil inventories are modest, so this speculative boost to oil prices does not appear to be the case!

He notes that speculation that the price of oil would go up decreased after the price exceeded $100 per barrel. On 11 March, there were 113,307 long contracts (those expecting a future price increase) on the New York Mercantile Exchange. By 10 June, there were only 25,246 long contracts, meaning that there are nearly as many contracts going short (expecting a price decrease) as going long. Off the commodity exchange, one can bet on the future price of oil by investing in the US Oil Fund. Those betting short on this fund outnumber those betting long by a two to one ratio. These speculators are betting on the price of oil going down!

Reynolds says there is no mystery behind the rise in oil prices. There is booming demand for oil and products made from it in India, China, and the Middle East. The supply of oil from the U.S., Mexico, Venezuela, Nigeria, and Russia has fallen.

Back to my comments: U.S. oil production is falling because Congress and President Clinton have not allowed more exploration and drilling for oil in the U.S. Production continues to fall in Mexico because their nationalized oil company is run incompetently. Oil production in Venezuela is down because of the tyrannical reign and complete irrationality of Hugo Chavez. Nigeria's production is down due to internal unrest and sabotage. Russia's production is probably down because the oil companies there were taken over by ex-KGB thugs tied in with Putin.

Prices are always determined by supply and demand unless government sets the price. If government does set the price too low, then people stop producing and supplying that good or service. If we want to use oil at a reasonable price, then we have to allow the production of a goodly supply of oil. So, instead of wasting our time and money while we pay far too much for our gasoline, Congress needs to allow the exploration and production of oil on the federal lands in the contiguous 48 states, in Alaska, and in our coastal waters. This will increase supply and that will bring down the price of oil and its products, such as gasoline. Of course, with oil and gasoline as expensive as they are now, people will make greater efforts to conserve them as well. The magnitude of the world's demand increase is likely to run well ahead of conservation efforts alone, so both oil production increases and more efficient usage are the proper response.

Alan Reynolds: Get Ready for the Oil-Price Drop

Alan Reynolds, senior fellow of the Cato Institute, wrote an article called "Get Ready for the Oil-Price Drop" which is very interesting reading. It was published in the New York Post on 6 June 2008. He points out that the United States is using no more oil now than it did in 2004, which one would hardly guess given all the accusations that Americans addiction to oil is causing the high oil prices or is causing the imminent death of the planet. In addition, he points out that passenger cars are not the primary user of oil, so politicians and socialists trying to make us feel guilty about driving to work are giving evidence that they do not understand how oil is used.

Only 44% of oil becomes gasoline and much of that is used by industry, not just individuals who are being enjoined to walk a mile to a bus stop and wait 15 minutes for it to show up, if it does, then switch to a second bus, then get on a Metro train, and then walk the remaining several blocks to their place of work. Two-thirds of US petroleum use is for transportation, but half of it fuels commercial trucks, trains, airplanes, and ships. Most crude oil is used to produce diesel fuel, heavy oil for industry, aviation fuel, asphalt, home heating oil, propane, wax, plastics, detergents, drugs, and fabrics.

Since such a large fraction of oil is used for industrial production and the delivery of goods and services, the price of oil is very cyclical. That is, its price increases with economic activity and falls when economic activity slackens. Historically, the price of oil fell 44% in the Nov 2000 to Nov 2001 recession, 48% from Oct 1990 to Jan 1992, and 71% from July 1980 to July 1986. Because fuel costs have a huge impact on business profit and loss, when the price of fuel goes up greatly, then production will decrease shortly afterward. In nine out of 10 postwar recessions, the recession began shortly after the price of oil rose greatly. This time around, US manufacturing was proven very resistant to production decreases due to the high price of oil and has been one of the reasons for the sustained oil price increases.

In the US and Britain, industrial production is nearly flat, being only 0.2% higher than it was a year ago. But, in many other countries, production dropped over that period. Japan is down 0.7%, Austria 1.1%, Italy and Denmark 2.5%, Canada 2.9%, Greece 5.4%, Singapore 5.7%, and Spain 13.3%. In April, industrial production in India and China fell. This worldwide production decrease is going to bring down the cost of oil substantially.

Well, maybe it was a good thing it has recently been high. It made it impossible for the Democrats and some very foolish Republican allies to pass the incredibly wrongheaded Warner-Lieberman Energy Security Act which was to tax our use of fuels heavily and grab control of much of our lives. Of course, I also like seeing the US proving to be one of the countries most resistant to industrial output decreases in the world. Those of us who work hard to make the US so productive have much to be proud of. We also give the socialists and the earth goddess worshipers so much to complain about with our use of resources! Let us continue to give them much to be unhappy and bitter about! Heck, they would not know what to do with themselves if they could not complain about those of us who create and produce. They need us, as do all the human parasites. But why should we allow these angry leaches to suck our blood? Why don't we use this high gasoline price episode to keep up a drumbeat campaign for increased oil production in the US and in Iraq?