That's why it's called a Futures Market

Yet another lesson in the basics of Free markets today...

The Mainstream press reads: Crude oil was little changed below $139 a barrel in New York after tumbling more than $6 yesterday because of concern a slower U.S. economy will curtail demand.

Prices dropped as Federal Reserve Chairman Ben S. Bernanke said risks to growth and inflation have risen, in testimony to the Senate Banking Committee. He abandoned a June assessment that the threat of an economic slowdown had diminished.

Then there's this alternative analysis from a bit earlier in the day: 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?

Regardless of the reason, the larger point is still the only point--the market reflects the future possibilities of increases, decreases in supply, demand and even the occasional indirect effect (think Iranian missile tests). And Democrats continue to be wrong and or stupid on the entire subject...

Liberals meet World

Might make for a truly interesting reality-TV program watching lefties run head-first into the real world...

The Pew Center's latest survey reveals that it is self-identified liberals who have most changed their attitude about drilling. Indeed, a slightly higher percentage of Democrats than Republicans now say that more energy production is important.

It would be even more amusing if it weren't so painful.

Why Democrats are wrong...

...when they tell you starting to explore and/or drill for new oil won't affect the price:

Now here is the good news. Any policy that causes the expected future oil price to fall can cause the current price to fall, or to rise less than it would otherwise do. In other words, it is possible to bring down today's price of oil with policies that will have their physical impact on oil demand or supply only in the future.

For example, increases in government subsidies to develop technology that will make future cars more efficient, or tighter standards that gradually improve the gas mileage of the stock of cars, would lower the future demand for oil and therefore the price of oil today.

Similarly, increasing the expected future supply of oil would also reduce today's price. That fall in the current price would induce an immediate rise in oil consumption that would be matched by an increase in supply from the OPEC producers and others with some current excess capacity or available inventories.

Any steps that can be taken now to increase the future supply of oil, or reduce the future demand for oil in the U.S. or elsewhere, can therefore lead both to lower prices and increased consumption today.

But I leave it to you...you can believe the former chairman of the Council of Economic Advisers under President Reagan or Chuck Schumer.

What she really meant to say...

What Nancy Pelosi said today about gas prices in America:

"We cannot drill our way out of this," House Speaker Nancy Pelosi of California countered. Opening the wildlife refuge in Alaska would reduce U.S. gasoline prices by one penny per gallon, she said. She and other Democrats blame President George W. Bush's energy policies for the gasoline price spike.

"A barrel of oil now costs four times more than it did when President Bush took office," Pelosi said. "Two oil men in the White House, cost of oil four times higher. Price at the pump: $4 a gallon."

I'm sure she didn't mean it. I mean, how could somebody of her stature be that stupid? Well, judging by this, it's not real hard:

She said oil companies already lease about 68 million acres of land that is not being drilled. She questioned why oil companies were pushing to open up the ANWR in Alaska when so many acres they currently hold are not being developed.

On that point, a group of Democratic lawmakers introduced legislation that would compel oil companies to drill in lands they are now leasing from the federal government.

"Oil corporations are trying to take control of as much land now during the oil-friendly Bush administration years, but are holding off on drilling until the price of oil soars to $200 or $300 a barrel so they can make even greater profits," said Rep. Maurice Hinchey, a New York Democrat and a sponsor of the drilling bill.

The bill would force oil companies to pay fees for leased lands that go unused. The fees would increase over time. Republicans argue current law already requires oil companies to "use or lose" the lands they lease.

I'm sure what she meant to say was that we can't conserve our way out of this, given the large increase in Global demand coming from China and India in the last few years. I mean, after all, members of Congress can't possibly be that stupid...

Be Less Informed

Jimmy Margulies putting his ignorance of life in the real world on display for all...

Your Wish is my Command

Sim wanted a new chart. So here it is. Straight out of company filings.

Hat tip to rrapier at R Squared Energy Blog. It's a slightly different presentation but makes entirely the same point.

When is a Presidential Candidate an Idiot?

When an idiot is running for President. Or, when his name is John Edwards. Much like Hugo did earlier in the week, Edwards proves his lack-of economic sense with these comments from Thursday:

Democratic presidential hopeful John Edwards says a wave of mergers in the oil industry should be investigated by the Justice Department to see what impact they have had on soaring gasoline prices.

During a planned campaign stop Thursday in Silicon Valley, Edwards planned to berate the oil industry for "anticompetitive actions" and outline an energy plan he says would reduce oil imports "and get us on a path to be virtually petroleum-free within a generation."

"Vertically integrated companies like Exxon Mobil own every step of the production process - from extraction to refining to sale at the pump, enabling them to foreclose competition," says an outline of Edward's energy plan provided to The Associated Press by his campaign.

Nincompoop...Oil companies margins haven't changed much at all over the years. If anything, they've shrunk some. Yet apparently oil companies are just setting prices arbitrarily with no regard for the market.

Yeah, right.

I didn't think much of Edwards in the '04 campaign--he came across as too much of a slick-talking empty suit and his but one uneventful term in the Senate did nothing to dispel the sense that he didn't know enough to handle the job. Stupid stunts like this one only underscore that same sense three years later.

Perhaps Bob Shrum is on to something...

A Broken Record

I keep saying it and nobody cares. For a second time in a matter of months, Big Oil has said it:

“It is true that gasoline prices move with oil prices, but ... demand continues to go up. Even with gas prices over $3 per gallon, demand continues to go up. That's really quite surprising,” James Mulva, chairman and CEO of Houston-based ConocoPhillips, said during an exclusive interview on TODAY.

“The issue is providing supply. We are running our refineries at capacity ...

That of course is not all he said, though it is the salient point.

In an effort to quell the rumours before they start, all I can say about the real possibility raised by the near identical nature of our rhetoric, that I am in fact James Mulva is this...you won't see us together at parties!

War for Oil

Our War for Oil worked out well:

The first crude oil pumped by a foreign company in Iraq in decades will flow into the global market next month.

DNO, a Norwegian oil company, will announce on Wednesday that it will begin producing a small amount of oil from the northern Iraqi region of Kurdistan, marking a symbolic return of foreign companies to Iraq after 35 years of state control.

The company’s experience is being closely watched by larger competitors, eager for a slice of the world’s third-largest oil reserves, but deterred by security fears and the lack of a legal framework for Iraqi oil.

But DNO’s announcement could add strain to relations between Iraq’s Kurdish authorities and the central government in Baghdad. DNO’s contract is with the local administration in the relatively peaceful north of Iraq, rather than with Baghdad.

The sharing of oil resources has been a point of dispute between Iraq’s sectarian communities. The Kurdish authorities’ decision to sign separate contracts, which could bring them a direct income source and consolidate their power, has provoked fears of a break-up of Iraq.

DNO’s contract may have to be amended once the country’s hydrocarbons law is finally agreed. Passage of the law – which is critical to attracting foreign investment – through the Iraqi parliament has stalled over control of individual oil fields.

Talk about incompetent...not only can Bush not win his staged war, he can't get his oil buddies the hefty contracts they so greedily covet.

It's still the Refining Capacity, stupid!

About time somebody said it...watch Shell President John Hofmeister make what amounts to a full-throated defense of the biz in this morning's Today Show interview. Or read about it here.

In a nutshell? It's still the refining capacity, stupid.

My personal favorite is the calling-out of the Government for it's unfriendly public-policy.

Let me Cry for You

Gas prices jumped more than 18 cents over the past two weeks to a national average of $2.79 a gallon of self-serve regular, a national survey said Sunday.

Let me cry for you...gas is currently $3.43 at it's most expensive spot in town and has been over $3.00 a gallon for weeks.

I'm crabby!

Reason #291 to make war for oil: Just paid $40 for a tank of gas. And it's only April...

Yes, I am kidding. There are better ways to get what we need. It sure felt good to write though, 'cuz I'm crabby!

Preach it brother!

Stan in Santa Maria takes a different--and I would argue refreshing--tack in this gripe-fest about the recent increase in gas prices on the Central Coast:

For gasoline consumers to better understand the cost of a gallon of gasoline, a few facts may help clarify what goes into making up the price that we pay at the pump.

California mandates that all gasoline must meet higher standards than required by federal standards. Thus, the gasoline produced here is available in very limited quantities from sources outside the state. When our supply and demand is out of balance, due primarily to refinery maintenance and occasional process interruptions, our specially formulated gasoline must acquired at then-prevailing prices and shipped in from out of state. Buying commodities at near-term spot market prices is not cheap. In addition to our state-mandated boutique gasoline formulation, our air-quality gurus have mandated that we also must add ethanol to each gallon. Ethanol is not produced here and must be acquired and shipped in from Midwestern producers. Ethanol requires special tank cars, storage in special tank facilities and blending into the finished gasoline, adding about 15 cents to the cost of a gallon.

Our fuel formulation requirements are not enough to cause our higher prices and, indeed, there is more to the story. A significant part of the price we pay at the pump is for taxes. California is among the higher-taxed states and, true to form, we pay among the highest gasoline taxes in the country. State and local taxes add about 24 cents a gallon, while the feds collect another 18 cents. Taxes make up about 20 percent of the price at pump and, guess what, the county sales tax is effectively indexed to the total price because it is charged on top of all the other costs and taxes! I wonder why we don't hear much about gouging from our local politicians?

So, when we feel the need to complain about high gasoline prices, let's not forget to direct some of our unhappiness toward local, state and federal politicians and air quality elites as well.