| quote | Originally posted by JazzMan:
The whole point of my comment was to point out that if we're going to use ethanol for transportation fuel we need to make it using common-sense efficient methods instead of the horribly wasteful and expensive to taxpayer methods used now. |
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I understand your point Jazz. And I agree with it...to an extent. And that extent is that
currently the technology and the infrastructure do not exist to make those "efficient methonds" a reality. The cost of establishing them would be even more expensive than just drilling for more oil. That is all I am saying.
We need a basic economics lesson in why oil prices are rising. Let's first talk about speculators since that is the hot topic of the day. Many have blamed the rapid rise in oil prices in 2007 and the first-half of 2008 on speculators. But if we somehow banned speculators from trading oil futures and options, would the price of oil drop back down to pre-2007 levels? Nope. Futures have maturity dates; just like bonds. Speculators hear that China and India, etc. are buying up more of the world's supply so they conclude that supply will be restricted and oil prices will rise. They also beleive all this "peak oil" non sense and come to the same conclusion. As such, the start buying up oil futures and options today, believing they will be worth more in the future. This buying up of oil futures immediately raises
their price, due to basic supply and demand. The price of oil should fall once these futures mature because speculators have no need for a physical delivery of oil - where would they store it? However prices, on average, do not fall - in fact they rise. It could be because someone is buying massive amounts of oil and physically storing it somewhere, but this is highly unlikely.
What is more likely is that the price is maintained high because it is being "stored" in the ground rather than making it to market; in other words, some oil companies are cutting production. Now, look at all the oil companies...not just American companies but those all over the world. Most are controled by the governments. And let's look at those governments, Russia, Venezuela, Iran, OPEC producers, etc. See a trend? They aren't terribly friendly to the US. And what else? If they are getting high prices for their oil then where is that money going? It is going to those countries that the US has neutered over the years. Possibly for terrorism but certainly for the propping-up of despotic governments that need cash and can't do business legitimately.
Now, unless the oil is being stored by the speculators (or somebody the speculators are selling their futures to), they cannot permanently drive the price up. All else being equal, oil prices must fall as the speculators sell their futures prior to maturity. But since the price of futures are not going down (on average), then all else must NOT be equal - it must be that production is being cut from what it would have been. We can think of the current situation as being akin to oil companies, or more accurately, the unfreindly governments, buying the futures from the speculators and delivering the oil to themselves.
Hence, the high prices appear to be largely supply-side issue. How much of the lower supply is due to foriegn oil companies cutting production and how much is due to "natural" factors is open to debate.
By letting US oil companies explore and drill more NOW, we increase domestic production which offsets the efforts by unfriendly foreign governments to manipulate oil prices. Speculators are winning, NOT due to their inherent genius or activity, but due to politics. Once US producers are capable of supplying most of our needs such that we are no longer dependant on "overseas" oil then we will see prices fall dramatically.
The advantage here is that not only will it help us, but it will help US OIL COMPANIES! YEP, they will be producing more, employing more Americans, selling more domestic product, and improving their margins over what they are today simply because their costs will be lower (if you can drill of the coast of Florida or Africa, which oil is cheaper to get here and refine?).