The problem is...

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... we just keep finding more of the stuff

From Zero Hedge:

The oil in the ground will run out some day. But as the discovery of proven reserves continues to significantly outpace the rate of extraction, the claims that we’re facing immediate shortages looks trashy.

Some may try to cast doubt on these figures, saying that BP are counting inaccessible reserves, and that we must accept that while there are huge quantities of shale oil in the ground, the era of cheap and readily accessible oil is over. They might cite the idea that oil prices are much higher than they were ten years ago. Yet this is mostly a monetary phenomenon resulting from excessive money creation beyond the economy’s productive capacity. Priced in gold, oil is still very cheap — almost as cheap as it has ever been:

So no. I’m not lying awake at night worrying about imminent peak oil. There’s plenty of extractable oil, and renewable energy will eventually supplement and replace it. But will politics get in the way of energy extraction? The United States has huge hydrocarbon reserves, yet regulation is preventing drilling and shipment, leaving America dependent on foreign oil. And the oil companies themselves are largely to blame — after Deepwater Horizon, should anyone be surprised that politicians and the public want to strangle the oil industry?

The President calls himself an "all of the above" sort but his actions betray his words. He has committed himself fully to the business of picking winners and losers in his energy policy. An aggressive pursuit of crude and shale oil and natural gas would jump-start and sustain a robust economy that could then, with private capital, fund the fledgling green energy sector instead of throwing tens of billions of dollars at the politically connected and technology that, quite simply, is not yet market-ready.




And somewhat related if we're talking politics: Hey, that speech on the economy on Thursday was a big flopper. How about an extra-constitutional executive order on illegal immigration to distract everybody?

Here's Leslie at Temple of Mut:

Dear Readers: While I usually strive to put some humor into my posts, as it helps sustain our emotional balance during these turbulent times, I find little to joke about today. President Obama, in an exceedingly cynical and politically-motivated move, has forgotten the basic tenets of the US Constitution and legislated by executive order.

Leslie predicts Obama will move on to forgiving student loan debts and underwater mortgages via EO sometime prior to November. Markets would necessarily take a dump but when you are on a re-elect panderfest run like this guy is, anything is possible.

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Enjoy your Father's Day, everybody. We'll see you tomorrow.

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Remember when gas was $1.82 a gallon...?

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... these guys don't.

Rising gas prices used to be big news, but not so these days. Although the national average climbed to $3.56 on Feb. 20, setting a February record after going up nearly a month straight, there was far less coverage than in 2008. Broadcast networks repeatedly covered the rise under the Bush presidency. Gas prices bounced around eventually reaching $3.56-a-gallon on April 24, 2008.

The Business and Media Institute analyzed broadcast network news references to gas or fuel prices between Jan. 20 and Feb. 20, 2012 and from March 24 and April 24, 2008. BMI found that in the 2008 period there were more than 4 times as many gas prices stories, news briefs or news headlines on ABC, CBS and NBC as there were in 2012 (97 to 21).

Coverage during the time periods differed not only in quantity, but in tone as well. During Bush’s tenure, gas prices were a huge economic threat and cause of suffering. The networks also used the high gas prices to attack the administration. In 2012, the networks aired mostly matter-of-fact stories on the rising gas prices, and worried primarily that they would hinder the economic recovery, not that they are making people suffer.

Dismal broadcast network reports about “skyrocketing” gas prices filled the newscasts in 2008. There were reports about businesses closing, airlines struggling and truckers protesting -- all because of the high prices. One ABC report said families were facing the “tough choice” between food or fuel. Others said that “wallets were running on empty” and consumers were told over and over that there was no relief in sight. But by the end of November 2008, prices had collapsed to $1.82.

Related: Anecdotaly, we recall quarterly GDP figures quite often being revised upwards after the fact while Bush was in office and conversely, those same figures being routinely revised (unexpectedly!) downward under Obama.


We suppose that when you are in the tank for a man who has been nothing but passive-agressively hostile to oil production and who has on his team an energy secretary who actually said “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe,” , higher gas prices at the pump are really no big deal and, in fact, are something to be celebrated. If it weren't for these damn elections every four years, though.





We'll let Victor Davis Hanson wrap things up:

Obviously putting American oil off-limits and blocking the Keystone pipeline hardly encourage Middle East producers to make up the slack by doing things that we will not. Nor can we blame the “oil men” in the White House. Under the old calumny, the Bush-Cheney oil connections led to supposed profiteering that got gas up to an average of $1.85 when Bush left office in January 2009; apparently that slur is now inoperative given that gas has roughly doubled under the wind-and-solar team.

On top of it

Via Hot Air


Finally... Looks like we're going to be getting to the bottom of the cause for these high gas prices.

President Barack Obama said Thursday that the Justice Department will try to "root out" cases of fraud or manipulation in oil markets, even as Attorney General Eric Holder suggested a variety of legal reasons may be behind gasoline's surge to $4 a gallon.

"We are going to make sure that no one is taking advantage of the American people for their own short-term gain," Obama said at a town-hall style meeting at a renewable energy plant in Reno.

The national average price for a gallon of regular gasoline was $3.84 on Thursday, about 30 cents higher than a month ago and almost a dollar higher than a year ago.

Obama, decrying such levels as yet another hardship "at a time when things were already pretty tough," said Holder was forming the Financial Fraud Enforcement Working Group.

The task force will focus some of its investigation on "the role of traders and speculators" in the oil-price surge Obama said. The group will include several Cabinet department officials, federal regulators and the National Association of Attorneys General.

In Washington, Holder said he would press ahead with the investigation, even though he did not cite any current evidence of intentional manipulation of oil and gas prices or fraud.

So, it's waste, fraud and abuse, huh?


If you are skeptical as to that being the real reason, perhaps it's because you've been listening to the admonitions of another Washington power player who had this to say just short of two weeks ago:

So because all this spending is popular with both Republicans and Democrats alike, and because nobody wants to pay higher taxes, politicians are often eager to feed the impression that solving the problem is just a matter of eliminating waste and abuse – you’ll hear that phrase a lot. “We just need to eliminate waste and abuse!” The implication is that that tackling the deficit issue won’t require tough choices.

(italics, ours)

The level of unseriousness here is shocking.


We're in the very best of hands.

Free Markets and the Price of Oil

B-Daddy here. I am boldly predicting a large drop in the price of oil within the next three years, unless our government intervenes to make a mess of things. How can I be so sure? History and logic are on my side.

First, the logic. The high cost of petroleum energy induces all sorts of changes in behavior. First, on the demand side, consumers make billions of tiny changes in behavior to compensate for the higher costs. Some examples: Many people drive more gently, accelerating more slowly, driving a little slower. Nissan has found that putting a fuel efficiency gauge on cars increases efficiency by as much as 10% (source here). Car pooling increases. Another small example, our family has started to plan out little errands, grouping trips together that were previously separate. Also, we ditched the 8-cylinder gas guzzler, even though it was a good starter car for our sixteen year old.

On the supply side, two things happen. First, there tends to be an increase in production in those nations not under despotism. (I realize that Iran and Venezuela, for example, will probably not be increasing production, but others will.) Oil that was not profitable to extract at $60 per barrel is very attractive at $140. Maintenance and repairs on old equipment suddenly makes more sense. Second, alternative forms of energy become relatively more competitive and can be brought on line, increasing the overall supply of energy.

Free markets are efficient, but not perfectly efficient. It will take a while for these changes to work their way through the markets, but when the trend is obvious, those speculators now vilified for allegedly driving the price of oil up, will be betting against future oil prices, driving them down.

As for the history, the following chart speaks for itself:

Source: Zfacts.

The other joker in this deck (besides Hugo and Mahmoud) is inflation. The price of oil vs. the price of oil makes a very steady ratio, as noted here. (Scroll to the bottom for the chart.) I theorize that inflationary pressure has been building for some time, popping up first in share prices, then in real estate and now in commodities. I am not sure the Fed has a good model for how inflation is now operating in a global economy, so part of the run up in oil prices may be due to inflationary pressure. Perhaps more on that another day.

That whole speculation business cuts both ways

Similar to what happened to the price of crude oil when the Brazilians announced their massive off-shore find a couple of months ago…and that they weren't going to just let it set there.

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.

Also,

A new report from Wall Street research house Sanford C. Bernstein says that California actually could start producing new oil within one year if the moratorium were lifted. The California oil is under shallow water and already has been explored. Drilling platforms have been in place since before the moratorium. They’re talking about 10 billion barrels worth off the coast of California.

Full piece here.