The reason oil prices went down yesterday is because financial sector holdings were liquidated to raise cash for bank runs and margin calls.
From the
http://www.nytimes.com/2008/07/16/business/16fed.html?_r=1&hp&oref=slogin">New York Times:
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Mr. Bernanke was especially pessimistic about any easing of energy prices, dismissing suggestions that they were being driven by speculation in futures markets. Instead, he said high energy costs reflected the markets’ recognition that demand was outstripping supplies.
“Over the past several years, the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil,” Mr. Bernanke said. “On the supply side, despite sharp increases in prices, the production of oil has risen only slightly in the past few years.”
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And from the
http://www.whitehouse.gov/news/releases/2008/07/20080715-1.html">chimp:
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Q Gas prices are now approaching $5 a gallon in some parts of the country. Offshore oil exploration is obviously a long-term approach. What is the short-term advice for Americans? What can you do now to help them?
THE PRESIDENT: First of all, there is a psychology in the oil market that basically says, supplies are going to stay stagnant while demand rises. And that's reflected somewhat in the price of crude oil. Gasoline prices are reflected -- the amount of a gasoline price at the pump is reflected in the price of crude oil. And therefore, it seems like it makes sense to me to say to the world that we're going to use new technologies to explore for oil and gas in the United States -- offshore oil, ANWR, oil shale projects -- to help change the psychology, to send a clear message that the supplies of oil will increase.
Secondly, obviously good conservation measures matter. I've been reading a lot about how the automobile companies are beginning to adjust -- people -- consumers are beginning to say, wait a minute, I don't want a gas guzzler anymore, I want a smaller car. So the two need to go hand in hand. There is no immediate fix. This took us a while to get in this problem; there is no short-term solution. I think it was in the Rose Garden where I issued this brilliant statement: If I had a magic wand -- but the President doesn't have a magic wand. You just can't say, low gas. It took us a while to get here and we need to have a good strategy to get out of it.
Q But you do have the Strategic Oil Petroleum Reserve. What about opening that?
THE PRESIDENT: The Strategic Oil Petroleum Reserve is for, you know, emergencies. But that doesn't address the fundamental issue. And we need to address the fundamental issue, which I, frankly, have been talking about since I first became President -- which is a combination of using technology to have alternative sources of energy, but at the same time finding oil and gas here at home. And now is the time to get it done. I heard somebody say, well, it's going to take seven years. Well, if we'd have done it seven years ago we'd be having a different conversation today. I'm not suggesting it would have completely created -- you know, changed the dynamics in the world, but it certainly would have been -- we'd have been using more of our own oil and sending less money overseas.
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and...
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Q Following up on the question about oil, in the past, when oil prices have gone up a lot, they've wound up going down a lot afterward. But I wonder if you're able to say that oil prices in the future are going to come down a lot.
THE PRESIDENT: I can't predict, John. I mean, look, my attitude is, is that unless there is a focused effort -- in the short term -- unless there's a focused effort to bring more supplies to market, there's going to be a lot of upward pressure on price. We got 85 million barrels a day and -- of demand and 86 million barrels of production. And it's just -- it's too narrow a spread, it seems like to me.
Now, I'm encouraged by, you know, the Caspian Basin exploration. I'm encouraged that the Saudis are reinvesting a lot into their older fields. And remember, some of these oil fields get on the decline rate, which requires a lot of investment to keep their production up to previous levels. So one thing we look at is how much money is being reinvested in some of those fields. I'm encouraged by that.
I am discouraged by the fact that some nations subsidize the purchases of product, like gasoline, which, therefore, means that demand may not be causing the market to adjust as rapidly as we'd like. I was heartened by the fact that the Chinese the other day announced that they're going to start reducing some of their subsidies, which all of a sudden you may have some, you know, demand-driven changes in the overall balance.
But, look, if we conserve and find more energy, we will done -- have done our part to address, you know, the global market right now. And the other thing is that this is just a transition period. I mean, all of us want to get away from reliance upon hydrocarbons, but it's not going to happen overnight. One of these days people are going to be using battery technologies in their cars. You've heard me say this a lot. I'm confident it's going to happen. And the throw-away line, of course, is that your car won't have to look like a golf cart.
But the question then becomes, where are we going to get electricity? And that's why I'm a big believer in nuclear power, to be able to make us less dependent on oil and better stewards of the environment. But there is a transition period during the hydrocarbon era, and it hasn't ended yet, as our people now know. Gasoline prices are high.
Again, I don't want to be a "I told you so," but if you go back and look at the strategy we put out early on in this administration, we understood what was coming. We knew the markets were going to be tight. And therefore, we called for additional exploration at home, plus what has been happening, which is an acceleration of new technologies -- including ethanol technologies -- to get us less dependent on crude oil from overseas.
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and...
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Q `You never mention oil companies. Are you confident that American oil producers are tapping all of the sources they have out there, including offshore? And on Iraq, will you sign an interim agreement with Prime Minister Maliki on American operations in Iraq, leaving it to your successor to do a more permanent agreement?
THE PRESIDENT: There are -- let me start with Iraq. We're in the process of working on a strategic framework agreement with the Iraqi government that will talk about cooperation on a variety of fronts -- diplomacy, economics, justice. Part of that agreement is a security agreement, and I believe that -- you know, they want to have an aspirational goal as to how quickly the transition to what we have called overwatch takes place. Overwatch will mean that the U.S. will be in a training mission, logistical support as well as special ops.
In order for our troops to be in a foreign country, there must be an understanding with the government. There must be authorities to operate, as well as protections for our troops. We're in the process of negotiating that, as well. And it needs to be done prior to the year because -- unless, of course, the U.N. mandate is extended. And so there are two aspects to the agreement -- people seem to conflate the two -- and we're working both of them simultaneously.
Let's see here.
Q American oil producers?
THE PRESIDENT: Oh, what was the question again on that?
Q You talked about offshore --
THE PRESIDENT: What about them -- do I think they're investing capital to find more reserves with the price at $140 a barrel? Absolutely. Take an offshore exploration company. First of all, it costs a lot of money to buy the lease, so they tie up capital. Secondly, it takes a lot of money to do the geophysics, to determine what the structure may or may not look like. That ties up capital. Then they put the rig out there. Now, first of all, in a federal offshore lease, if you're not exploring within a set period of time, you lose your bonus; you lose the amount of money that you paid to get the lease in the first place.
And once you explore, your first exploratory, if you happen to find oil or gas, it is -- you'll find yourself in a position where a lot of capital is tied up. And it becomes in your interest, your economic interest, to continue to explore so as to reduce the capital costs of the project on a per-barrel basis. And so I -- I think -- I think they're exploring. And hopefully a lot of people continue to explore so that the supply of oil worldwide increases relative to demand.
Now, people say, what about the speculators? I think you can't help but notice there is some volatility in price in the marketplace, which obviously there are some people in the -- buying and selling on a daily basis. On the other hand, the fundamentals are what's really driving the long-term price of oil, and that is, demand for oil has increased, and supply has not kept up with it. And so part of our strategy in our country has got to be to say, okay, here are some suspected reserves and that we ought to go after them in an environmentally friendly way.
A buddy of mine said, well, what about the reefs? So I'm concerned about the reefs. I'm a fisherman, I like to fish, reefs are important for fisheries. But the technology is such that you can protect the reefs. You don't have to drill on top of a reef. You can drill away from a reef and then have a horizontal hole to help you explore a reservoir.
It's like in Alaska. You know, in the old days, you would have had to have -- if you ever go out to West Texas, you'll see, there's like a rig every 20 acres, depending upon the formation. In Alaska you can have one pad with a lot of horizontal drilling, which enables you to exploit the resources in a way that doesn't damage the environment. These are new technologies that have come to be, and yet we've got an old energy policy that hasn't recognized how the industry has changed. And now is the time to get people to recognize how the industry has changed.
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and...
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I fully understand that this is a transition period away from hydrocarbon, but we ought to be wise about how we use our own resources.
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They're practically SCREAMING that we have supply challenges yet they both do it in a nuanced fashion. TRHEE TIMES he says we are in a transition period away from hydrocarbons.
You know, these people are trying to tell us something but I guess the message is just for those of us discerning enough, with regard to oil, that a finite resource can be depleted.
You go ahead and believe whatever you want though.
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