If a small change in oil production would have a negligible affect on price, then why did the price spike when Huriccanne Katrina disrupted production in the Gulf of Mexico?

 

The market often overreacts to sudden disruptions in supply and uncertainty. It is not the same as a gradual change in supply which the market has plenty of time to understand and digest.

The cost of oil is not the result of some laboratory experiment. You cannot hold all of the variables constant while measuring the effect that additional domestic production would have on the price of a gallon of gasoline. Therefore, your point is not really applicable. .

 

 

Excuse me, but aren't you assuming that production from other suppliers would remain constant when you claim that this very small increase in U.S. production would reduce the global crude price? Although I still haven't seen any estimate from you on how much you think incremental ANWR and offshore production would reduce the global price of oil, you obviously seem to think it would reduce price by more than the most optimistic EIA estimate of $1.44/barrel. You're making the implicit assumption that the increased domestic production would increase world supply, which may not be the case at all. Don't forget that OPEC is a cartel. They could easily choose to restrain their production and completely cancel out any price effect from the incremental U.S. production. Therefore, there is some probability that incremental U.S. production will have zero effect on global crude oil prices. The EIA report alludes to that possibility, which suggests they have accounted for that in their analysis. Have you?

 

 

 

Proponents of the unfounded theory that placing additional reserves on the market would have a negligible effect on gasoline prices are conveniently overlooking the psychological impact that a strong American resolve to displace foreign oil in the domestic market would have.

 

 

First, as I said above, there is no guarantee that additional domestic production would translate to additional supply in the global market, where prices are set. Second, I doubt a reduction in oil imports from 70% to 65% is going to have much psychological effect on anyone. If demonstrating resolve is important, we should do it with serious actions to cut our petroleum use through the implementation of alternative and domestic non-petroleum energy sources. You don't lose weight by bringing home more cheetos and ice cream.

 

 

The no-new-drilling advocates are also overlooking the impact that the income from the sale of additional domestic production would have on our economy. How many jobs would an additional $100 million per day in oil revenues from ANWR production create (even if the oil is shipped to Asia)? Would you really rather have an Iranian madman or Saudi prince to pocket that money than an American oil company?

 

The whole notion that the US can close the spigot on domestic oil production and not affect the future cost of gasoline is preposterous. Our children will pay dearly for the short-sighted political games that environmental extremists are playing with this nation's economic lifeblood.

 

 

I can assure you that many more jobs would be created if we took the necessary steps to rid our economy of its dependence on oil. We could pursue every domestic drop of oil that is economically feasible to extract, and we would still be importing well over half of our current needs. That is no solution to any of our problems. I'm sure the select few who would benefit from that bonanza love the idea, but it would not benefit the country as a whole because we would still be dependent on a cartel composed of bad actors to supply what you call the nation's economic lifeblood. We need an energy policy that drives a deliberate and orderly transition away from the oil economy as quickly as possible. If we augmented our power generation infrastructure with substantial nuclear, wind, and solar capacity, the capital expenditures would create hundreds of thousands (if not millions) of high-paying jobs. That would free our considerable coal and natural gas resources for use as fuel for transportation. At the same time, we would greatly reduce the transfer of our wealth to hostile middle eastern states that sponsor terrorism. Your solution (drill more oil, remain addicted to oil) merely perpetuates the status quo.

We need to keep in mind that we have 3 separate goals in mind when it comes to oil.

 

1) Reduce the price of oil

2) Reduce our dependency on foreign oil

3) Reduce our dependency on oil

Excuse me, but aren't you assuming that production from other suppliers would remain constant when you claim that this very small increase in U.S. production would reduce the global crude price? Although I still haven't seen any estimate from you on how much you think incremental ANWR and offshore production would reduce the global price of oil, you obviously seem to think it would reduce price by more than the most optimistic EIA estimate of $1.44/barrel. You're making the implicit assumption that the increased domestic production would increase world supply, which may not be the case at all. Don't forget that OPEC is a cartel. They could easily choose to restrain their production and completely cancel out any price effect from the incremental U.S. production. Therefore, there is some probability that incremental U.S. production will have zero effect on global crude oil prices. The EIA report alludes to that possibility, which suggests they have accounted for that in their analysis. Have you?

I don't really care what the magnitude of the impact of additional domestic oil production is because it is a dead certainty that oil prices will not decline, nor will the rate of increase in prices moderate if demand continues to rise without an increase to the amount of oil on the market. If you want a halt to domestic oil production or simply to allow it to wither away and then deal with the consequences, then just say so. There is no way to justify doing nothing based on somebody's projection of the future price of oil. As I have already demonstrated to you, IEA has done a very poor job of forecasting prices in the past and there is no reason to believe that their current long term forecasts are any better. In fairness to the IEA, it is unlikely that anybody came close to predicting current oil prices twenty years ago.

First, as I said above, there is no guarantee that additional domestic production would translate to additional supply in the global market, where prices are set. Second, I doubt a reduction in oil imports from 70% to 65% is going to have much psychological effect on anyone. If demonstrating resolve is important, we should do it with serious actions to cut our petroleum use through the implementation of alternative and domestic non-petroleum energy sources. You don't lose weight by bringing home more cheetos and ice cream.

Quick and widespread adoption of alternative fuels is not an economically viable option. A deep depression would probably bring gasoline prices down sharply and if we do nothing to replace declining domestic oil production, we just may get that depression.

I can assure you that many more jobs would be created if we took the necessary steps to rid our economy of its dependence on oil. We could pursue every domestic drop of oil that is economically feasible to extract, and we would still be importing well over half of our current needs. That is no solution to any of our problems. I'm sure the select few who would benefit from that bonanza love the idea, but it would not benefit the country as a whole because we would still be dependent on a cartel composed of bad actors to supply what you call the nation's economic lifeblood. We need an energy policy that drives a deliberate and orderly transition away from the oil economy as quickly as possible. If we augmented our power generation infrastructure with substantial nuclear, wind, and solar capacity, the capital expenditures would create hundreds of thousands (if not millions) of high-paying jobs. That would free our considerable coal and natural gas resources for use as fuel for transportation. At the same time, we would greatly reduce the transfer of our wealth to hostile middle eastern states that sponsor terrorism. Your solution (drill more oil, remain addicted to oil) merely perpetuates the status quo.

Jobs are produced by profitable businesses not from government mandates. Mandating the use of alternative fuels that would make American businesses less competitive with their foreign counterparts. The drop in oil prices that would result in lower American consumption would make the gap in profitability between American companies using expensive alternative fuels and foreign companies using the cheapest available fuels even wider.

 

The fact that Senator Obama shares your position on this important issue is the scariest thing about his candidacy. The last president who created new government mandates to reduce energy consumption and levied punitive taxes on American oil companies as punishment nearly wrecked our economy. We do not need another Jimmy Carter to prove that the free market works the same for oil prices as it does for other commodities. (Actually, we did not really need the first Jimmy Carter, but Watergate washed him into the White House anyway.)

We need to keep in mind that we have 3 separate goals in mind when it comes to oil.

 

1) Reduce the price of oil

2) Reduce our dependency on foreign oil

3) Reduce our dependency on oil

:thumb: I agree and there is no reason not to pursue all three goals simultaneously.

I don't really care what the magnitude of the impact of additional domestic oil production is because it is a dead certainty that oil prices will not decline, nor will the rate of increase in prices moderate if demand continues to rise without an increase to the amount of oil on the market. If you want a halt to domestic oil production or simply to allow it to wither away and then deal with the consequences, then just say so. There is no way to justify doing nothing based on somebody's projection of the future price of oil. As I have already demonstrated to you, IEA has done a very poor job of forecasting prices in the past and there is no reason to believe that their current long term forecasts are any better. In fairness to the IEA, it is unlikely that anybody came close to predicting current oil prices twenty years ago.

 

 

OK, so you admit you have no idea how much of a price impact the incremental oil would have. Which is to say, because the incremental oil could be completely offset by OPEC reductions to maintain any price, you are not disputing that the price effect could be zero (or certainly very small). Which is what the EIA report said in the first place. Thank you.

 

 

Quick and widespread adoption of alternative fuels is not an economically viable option. A deep depression would probably bring gasoline prices down sharply and if we do nothing to replace declining domestic oil production, we just may get that depression.

 

You argue for a double standard. In one thread, you say that our government needs to provide unique tax breaks to the large oil companies to encourage them to explore for oil and provide it cheaply to the market. In another, you reject the use of alternative fuels as "not economically viable". So, in your world, oil should receive a subsidy from the government in the form of special tax breaks and military protection on its perilous journey from the middle east, while domestically-available alternative energy must independently demonstrate its economic viability? It sounds to me like you just want to perpetuate the use of oil, regardless of the economic and national security consequences we face because we import 70% of our consumption.

 

 

Jobs are produced by profitable businesses not from government mandates. Mandating the use of alternative fuels that would make American businesses less competitive with their foreign counterparts. The drop in oil prices that would result in lower American consumption would make the gap in profitability between American companies using expensive alternative fuels and foreign companies using the cheapest available fuels even wider.

 

No mandates. Tax incentives. Rather than directing tax incentives toward a product (oil) that we will never become energy independent with (not even in your wildest ANWR fantasies), we should be providing tax incentives to competing forms of domestic alternatives so that the infrastructure transition can begin. I don't buy your argument that American business would necessarily suffer from competitive disadvantage. Honda sells a version of the Civic today, powered by CNG that costs 30-50% less to operate than a gasoline powered vehicle (and is not subject to the whims of the OPEC nations). The main problem with it is that 1) we have an energy infrastructure suited almost entirely to the use of gasoline and 2) we currently rely on natural gas for 20% of our electricity generation needs. If proper incentives were put in place to 1) encourage the building of required CNG infrastructure and 2) encourage the replacement of NG electricity generation with other alternatives, widespread use of CNG-powered vehicles would significantly cut our consumption of oil. How much more competitive would U.S. businesses be if a significant portion of the transportation system were operated using cheap and available CNG? That could be possible with a coordinated set of incentives to encourage changes in our energy infrastructure. It is highly unlikely that pure market forces would drive such a complex and coordinated change across unrelated industries, however.

 

 

The fact that Senator Obama shares your position on this important issue is the scariest thing about his candidacy. The last president who created new government mandates to reduce energy consumption and levied punitive taxes on American oil companies as punishment nearly wrecked our economy. We do not need another Jimmy Carter to prove that the free market works the same for oil prices as it does for other commodities. (Actually, we did not really need the first Jimmy Carter, but Watergate washed him into the White House anyway.)

 

 

:sleep: Wake me up when you have an idea other than more of the same.