America's Bad Habbit
I feel like if you learn from the past, you won’t repeat the mistake again in the future.
So ask yourself, did America learn anything from the oil shock in the 70’s? I don’t think so. America recently became complacent and thought cheap oil would last forever.
Do you hear that sound? It’s the sound of tragedy striking the average American.
Needless to say, everyone’s talking about oil. If my cats could talk, they’d talk about it too. Instead, they meow incomprehensible mumbo jumbo that I interpret as complaints about the price of oil.
Last week I talked about drilling offshore. I mentioned that I was in favor of it, but it was no short-term solution. Many of you chimed in. Here’s one of my favorite and it comes from James P.:
Now, we can drive slower, take less trips, carpool, and do other things to save fuel, but right now most people do not have the option to not perform all these others duties. In most cases, the demand for oil products by most people is fixed because of our need, not want, for oil products.
You say that in most cases the demand for oil products is fixed… so how is it that U.S. oil demand dropped over one percent in the past few months? Or how was it that demand for oil dropped so much in the late 70’s that it took years to get back to that amount of consumption?
Listen James, I get what you’re trying to say. Let’s just agree to disagree.
When gas prices move higher people WILL first complain about it. Then they’ll take less trips, start using public transportation, buy motorcycles and more fuel-efficient cars, and anything else they can do to lessen the impact higher prices have on their wallet.
Local transit has been growing in Michigan just this past year. So has Tri-Rail usage in South Florida. Across the country, you’ll see the same trend.
Clearly oil – like every other commodity in the world - is subject to supply and demand. And just to put a nail in this coffin, in the past eight years global oil demand rocketed as China, India, Brazil and Russia begin using more oil per capita, and since 2005 – according to the IEA – oil production has not moved higher.
More demand and less supply equals what? Higher prices my friend, higher prices.
I also got a few e-mails talking about the effect of speculators on the oil market. I basically said that congress focusing all their efforts on speculators is a little silly.
It’s not that I don’t believe that speculators have helped push prices higher. It’s just that I also know speculators will help push prices lower. It’s just how the markets work.
Some of you took me to task on this. One e-mail from Tom S. said…
We have just seen a player for Bear Stearns fake suicide because of his manipulation of the financial markets. The goal of some commodity players I would imagine is manipulation. Countries the world over have set controls they feel are needed to maintain favorable transactions in commodities including the human commodity. And when I heard that a relatively few hedge fund guys made 50 billion dollars, whew. Has there ever been a free market? Banks and railroads weren't built by guys who played fair. Isn’t manipulation as large a player as free markets in many cases?
You couldn’t be more right, Tom. Manipulation is a huge reason why the U.S. is as large as it is today. And hedge funds, in particular, are notorious for manipulating the markets. Recently a hedge fund that was short a particular stock put out a fake news story and the stock dropped 20%. I think the person who wrote that piece should be fed to rabid dogs.
Anytime you screw with the markets, you affect people’s lives. It doesn’t matter if you manipulate the price of oil or the price of Microsoft stock. Anyone that may be manipulating the oil markets should pay for it. Perhaps we can line up all those ‘guilty’ of manipulating oil futures and let those who suffered the most drop kick them in the face.
Brian S. wrote an e-mail along the same lines, but mentioned the Enron Loophole…
Are you saying that worldwide demand has gone up three-fold since last year? That seems unlikely since Americans have been driving billions of miles less because of high gas prices. We also have probably eight times the amount of oil the Saudi's have right here in the middle of the country in oil shale. To me the only explanation is the Enron loophole. If that were closed, the price per barrel would drop 50% overnight.
I’ll agree the pop in oil prices may seem ridiculous. But considering the fact we haven’t produced enough oil to meet demand since 2005, it’s a little shocking that oil prices didn’t push higher sooner than they did.
Yes, we have oil shale, but it would never produce as many barrels per day as a good old- fashioned Saudi oil well would. Plus, it’s not producing, so it shouldn’t be considered part of current supply.
Markets have this funny tendency to move back and forth quickly. Right now oil prices are high, but we’ll more than likely see them come down. I wouldn’t be shocked to see oil end the year at $110-$120. Should we blame that drop in oil prices on speculators too? What happens if speculators become increasingly bearish and push oil prices back down to $50 a barrel, throwing off the profitability of many new oil projects… should we blame speculators then?
Ahh, but that’d be far too unpopular for America to accept.
You see, it’s really a double standard. We blame speculators on the way up but thank them on the way down (unless we’re long). Here’s a short story of how speculators help the market.
Uranium wasn’t easily traded for years. Speculators had to get their hands on it through indirect forms. Since 2000, the price of uranium just kept pushing higher, eventually hitting over $140 a pound. And during this time, it didn’t have one day where it traded down in price.
Then guess what happened – speculators were allowed to trade uranium. Today, uranium trades for under $60 a pound. Should we blame the speculators there?
As far as the Enron Loophole (which allows energy speculators to forgo US regulation if they make their trades electronically) that should go out the door. This law was created for Enron and was stupid to begin with.
Another one of our readers, Terry M., gives us his thoughts all the time. He wrote in telling me…
A large part of the "OIL PROBLEM", IS the speculators. Many of the financial analyst's, ( two of which work for IDE), agree that if the minimum margin requirement was to be raised from 5% to 20%, you would then see the price of sweet crude come back to levels that are more on par with reality!
I think all of our analysts at IDE are extremely talented individuals and I’ve learned a lot from them. It certainly doesn’t mean I have to agree with them. But I guess that’s the beauty of our team here. We don’t put our articles together to fit an agenda. We tell you what we think, what we know, and what we’ve experienced. Take it and do what you will with it.
As far as what they said, I think if you increase margin requirements on any future, it will put a damper on trading and speculation. We might see oil prices come back down $20, $30, maybe even $40. But as long as the world demands more oil than can be supplied, oil prices will not only stay high, but move higher.
Call me crazy, but I think high oil prices are a blessing in disguise. It allows America to be weaned off oil that comes from unstable regions of the world and get into new technologies that will make America stronger. The last time we had an opportunity like this, it was blown.
Today we are going through the same thing that happened in the ‘70s. Should we ignore the task in front of us and look for an easy way out of it? Or should we simply accept the challenge we face and go all the way?
I think it’s about damn time that America did something a little different than what it’s been doing. If that means pushing the advancement of the electric car… solar panels … wind power … the advancement of hydrogen technology… or cellulose ethanol, then so be it.
The more we spend now to come up with the technology, the sooner we’ll have it and the sooner it will make a drastic impact. And in the meantime, that spells huge opportunities for anyone looking to make some bucks in the market.
Don’t mistake me for a fool, though. I know that it’s going to take some time for all of these things to be implemented. And along the way, why not drill for more oil to make sure we can keep getting our ‘fix’? But the final solution – not the short or long-term solution - is in finding a way to replace oil with something better and cleaner.
In the end, if the oil majors spent the billions that they use on yearly buybacks and instead used it for developing renewable energy, we’d have far better technology than what’s out there today.
So ask yourself, did America learn anything from the oil shock in the 70’s? I don’t think so. America recently became complacent and thought cheap oil would last forever.
Do you hear that sound? It’s the sound of tragedy striking the average American.
Needless to say, everyone’s talking about oil. If my cats could talk, they’d talk about it too. Instead, they meow incomprehensible mumbo jumbo that I interpret as complaints about the price of oil.
Last week I talked about drilling offshore. I mentioned that I was in favor of it, but it was no short-term solution. Many of you chimed in. Here’s one of my favorite and it comes from James P.:
Now, we can drive slower, take less trips, carpool, and do other things to save fuel, but right now most people do not have the option to not perform all these others duties. In most cases, the demand for oil products by most people is fixed because of our need, not want, for oil products.
You say that in most cases the demand for oil products is fixed… so how is it that U.S. oil demand dropped over one percent in the past few months? Or how was it that demand for oil dropped so much in the late 70’s that it took years to get back to that amount of consumption?
Listen James, I get what you’re trying to say. Let’s just agree to disagree.
When gas prices move higher people WILL first complain about it. Then they’ll take less trips, start using public transportation, buy motorcycles and more fuel-efficient cars, and anything else they can do to lessen the impact higher prices have on their wallet.
Local transit has been growing in Michigan just this past year. So has Tri-Rail usage in South Florida. Across the country, you’ll see the same trend.
Clearly oil – like every other commodity in the world - is subject to supply and demand. And just to put a nail in this coffin, in the past eight years global oil demand rocketed as China, India, Brazil and Russia begin using more oil per capita, and since 2005 – according to the IEA – oil production has not moved higher.
More demand and less supply equals what? Higher prices my friend, higher prices.
I also got a few e-mails talking about the effect of speculators on the oil market. I basically said that congress focusing all their efforts on speculators is a little silly.
It’s not that I don’t believe that speculators have helped push prices higher. It’s just that I also know speculators will help push prices lower. It’s just how the markets work.
Some of you took me to task on this. One e-mail from Tom S. said…
We have just seen a player for Bear Stearns fake suicide because of his manipulation of the financial markets. The goal of some commodity players I would imagine is manipulation. Countries the world over have set controls they feel are needed to maintain favorable transactions in commodities including the human commodity. And when I heard that a relatively few hedge fund guys made 50 billion dollars, whew. Has there ever been a free market? Banks and railroads weren't built by guys who played fair. Isn’t manipulation as large a player as free markets in many cases?
You couldn’t be more right, Tom. Manipulation is a huge reason why the U.S. is as large as it is today. And hedge funds, in particular, are notorious for manipulating the markets. Recently a hedge fund that was short a particular stock put out a fake news story and the stock dropped 20%. I think the person who wrote that piece should be fed to rabid dogs.
Anytime you screw with the markets, you affect people’s lives. It doesn’t matter if you manipulate the price of oil or the price of Microsoft stock. Anyone that may be manipulating the oil markets should pay for it. Perhaps we can line up all those ‘guilty’ of manipulating oil futures and let those who suffered the most drop kick them in the face.
Brian S. wrote an e-mail along the same lines, but mentioned the Enron Loophole…
Are you saying that worldwide demand has gone up three-fold since last year? That seems unlikely since Americans have been driving billions of miles less because of high gas prices. We also have probably eight times the amount of oil the Saudi's have right here in the middle of the country in oil shale. To me the only explanation is the Enron loophole. If that were closed, the price per barrel would drop 50% overnight.
I’ll agree the pop in oil prices may seem ridiculous. But considering the fact we haven’t produced enough oil to meet demand since 2005, it’s a little shocking that oil prices didn’t push higher sooner than they did.
Yes, we have oil shale, but it would never produce as many barrels per day as a good old- fashioned Saudi oil well would. Plus, it’s not producing, so it shouldn’t be considered part of current supply.
Markets have this funny tendency to move back and forth quickly. Right now oil prices are high, but we’ll more than likely see them come down. I wouldn’t be shocked to see oil end the year at $110-$120. Should we blame that drop in oil prices on speculators too? What happens if speculators become increasingly bearish and push oil prices back down to $50 a barrel, throwing off the profitability of many new oil projects… should we blame speculators then?
Ahh, but that’d be far too unpopular for America to accept.
You see, it’s really a double standard. We blame speculators on the way up but thank them on the way down (unless we’re long). Here’s a short story of how speculators help the market.
Uranium wasn’t easily traded for years. Speculators had to get their hands on it through indirect forms. Since 2000, the price of uranium just kept pushing higher, eventually hitting over $140 a pound. And during this time, it didn’t have one day where it traded down in price.
Then guess what happened – speculators were allowed to trade uranium. Today, uranium trades for under $60 a pound. Should we blame the speculators there?
As far as the Enron Loophole (which allows energy speculators to forgo US regulation if they make their trades electronically) that should go out the door. This law was created for Enron and was stupid to begin with.
Another one of our readers, Terry M., gives us his thoughts all the time. He wrote in telling me…
A large part of the "OIL PROBLEM", IS the speculators. Many of the financial analyst's, ( two of which work for IDE), agree that if the minimum margin requirement was to be raised from 5% to 20%, you would then see the price of sweet crude come back to levels that are more on par with reality!
I think all of our analysts at IDE are extremely talented individuals and I’ve learned a lot from them. It certainly doesn’t mean I have to agree with them. But I guess that’s the beauty of our team here. We don’t put our articles together to fit an agenda. We tell you what we think, what we know, and what we’ve experienced. Take it and do what you will with it.
As far as what they said, I think if you increase margin requirements on any future, it will put a damper on trading and speculation. We might see oil prices come back down $20, $30, maybe even $40. But as long as the world demands more oil than can be supplied, oil prices will not only stay high, but move higher.
Call me crazy, but I think high oil prices are a blessing in disguise. It allows America to be weaned off oil that comes from unstable regions of the world and get into new technologies that will make America stronger. The last time we had an opportunity like this, it was blown.
Today we are going through the same thing that happened in the ‘70s. Should we ignore the task in front of us and look for an easy way out of it? Or should we simply accept the challenge we face and go all the way?
I think it’s about damn time that America did something a little different than what it’s been doing. If that means pushing the advancement of the electric car… solar panels … wind power … the advancement of hydrogen technology… or cellulose ethanol, then so be it.
The more we spend now to come up with the technology, the sooner we’ll have it and the sooner it will make a drastic impact. And in the meantime, that spells huge opportunities for anyone looking to make some bucks in the market.
Don’t mistake me for a fool, though. I know that it’s going to take some time for all of these things to be implemented. And along the way, why not drill for more oil to make sure we can keep getting our ‘fix’? But the final solution – not the short or long-term solution - is in finding a way to replace oil with something better and cleaner.
In the end, if the oil majors spent the billions that they use on yearly buybacks and instead used it for developing renewable energy, we’d have far better technology than what’s out there today.
By Charles
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