May 29, 2008

Mac in WSJ: "Blame Congress for High Oil Prices"

Marc Comtois

Mac Owens has a piece in today's Wall Street Journal, "Blame Congress for High Oil Prices." A sample:

To understand the depth of congressional complicity in the high price of gasoline, one must understand that crude oil prices explain 97% of the variation in the pretax price of gasoline. That price, which has risen to record levels, is set by the intersection of supply and demand. On the one hand, world-wide demand has accelerated mainly due to the rapid growth of China and India.

On the other hand, supply has been curtailed by the cartel-like behavior of foreign national oil companies, which control nearly 80% of world petroleum reserves. Faced with little competition in the production of crude oil, the members of this cartel benefit from keeping the commodity in the ground, confident that increasing demand will make it more valuable in the future. Despite its pious denunciations of the behavior of U.S. investor-owned oil companies (IOCs), Congress by its actions over the years has ensured the economic viability of the national oil company cartel.

It has done so by preventing the exploitation by IOCs of reserves available in nonpark federal lands in the West, Alaska and under the waters off our coasts. These areas hold an estimated 635 trillion cubic feet of recoverable natural gas – enough to meet the needs of the 60 million American homes fueled by natural gas for over a century. They also hold an estimated 112 billion barrels of recoverable oil – enough to produce gasoline for 60 million cars and fuel oil for 25 million homes for 60 years.

This doesn't even include substantial oil shale resources economically recoverable at oil prices substantially lower than those prevailing today. In an exchange between Sen. Orin Hatch (R., Utah) and John Hofmeister, president of Shell Oil Company during the May 21 Senate Judiciary Committee hearing, the point was made that anywhere from 800 million to two trillion barrels of oil are available from oil shale in Colorado, Utah and Wyoming.

If Congress really cared about the economic well-being of American citizens, it would stop fulminating against IOCs and reverse current policies that discourage, indeed prohibit, the production of domestic oil and natural gas. Even the announcement that Congress was opening the way for domestic production would lead to downward pressure on oil prices.

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I think that these current gas prices are ridiculous and only benefiting a certain few who are profiteering over the misery of many. How could such a small group of a few hold so much power over many?

This gas crisis is so out of hand, that I've resorted to drastic measures. Recently I converted my 04 Cadillac to utilize water as fuel from an easy to install kit, I obtained online from a company called

Posted by: PAUL at May 29, 2008 10:48 AM

One has to love the irony presented by the Leftists, err, progressives, err, environmentalists.

One the one hand, the protest "no blood for oil."

Then through faux environmentalism they ensure that we must procure oil from the Middle East.

The radical environmentalists want us all to live like the Amish (minus the religion and family values, of course).

Posted by: Tom W at May 29, 2008 10:56 AM

According to Catherine Clifford, staff writer Last Updated: May 29, 2008: 5:43 PM EDT “Oil prices take a slide”:

“News of a government investigation into oil trading came later in the day.
The Commodity Futures Trading Commission said it launched a nationwide investigation into the purchase, transportation, storage, and trading of crude oil and other petroleum product contracts back in December.
While CFTC investigations are usually secret, the agency said it is making this one publicly known in response to "today's market conditions" - which include surging oil prices and a growing chorus of people who blame them on speculative investors causing a price bubble.
The CFTC did not indicate when the investigation would be completed or when the results will be made public.
The agency, which has previously said it had found no evidence speculators are artificially driving up crude prices, also said it would better monitor the oil futures markets by requesting more information from overseas exchanges. It also will require investors who do not take delivery of oil - such as indexes and retirement funds - to provide more information about their trading practices.
Also contributing to the drop in crude prices Thursday was a U.S. gross domestic product report for the first quarter that was stronger than originally reported.
If the economy appears stronger than initially expected, there is a perception that interest rate cuts are over, which would push the dollar higher, said Flynn.
"If the dollar continues to strengthen, it will continue to put downward pressure on the price of oil," he added.
The dollar has risen steadily this week, gaining more than a penny against the euro and about 2 yen. Crude oil is traded around the globe in U.S. greenbacks, and so if the dollar loses value, crude oil becomes more expensive. “

In other words when the Federal Reserve lowered the interest rates to bail out Bear Sterns and banks due to subprime and credit card defaults, the US dollar was weaken thus driving up oil prices and inflation but saving Wall Street.

Posted by: Ken at May 29, 2008 6:23 PM

Bravo! Well written, Mac.

Posted by: Monique at May 30, 2008 10:54 PM

I blame the speculators, whose manipulation of the market has driven prices well beyond what supply and demand would dictate.
The big price drop on Wednesday indicates that maybe the speculative bubble is about to burst. My heart would really break to see T. Boone Pickens Jr. and his cohorts loses millions on the speculative market.

Posted by: rhody at May 31, 2008 5:31 PM

Ditto. We'll plan to take up a collection for them, Rhody ...

Posted by: Monique at May 31, 2008 10:38 PM
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