Oil Retreats Below $120: Don’t Believe The Hype!

The price of a barrel of crude settled under $120 for the first time since May 5th yesterday. The market responded by jumping over 300 points, giving the Dow its biggest one day gain since April. On top of all the good news, the Fed kept rates steady at 2 per cent. Things look great, think I will go out and get me a no interest mortgage.

Wait a second!

Ladies and Gentlemen, don’t believe the hype. All this pre-election “let the good times roll” hysteria that we are allowing ourselves to get caught up in will no doubt disappear after the  election faster than the ground crew at Andrews can get Bush’s crap into Air Force One.

It will all settle back to normal by the time we head out to our mailboxes to get the bill for the first round of home heating oil. At the same time I get to watch Joe Kennedy on TV tell me how nice it is that the “good people” of Venezuela and CITGO have proudly donated home heating oil to the poor. It’s all a scam.

Why?

Because there are forces at work in this year’s election just like there was in the summer of 2007. Don’t you remember watching oil prices drop sharply only to see them rise again after the republicans got their asses handed to them in November?

Both sides will no doubt take credit for any downward pricing applied to a barrel of crude between now and Election Day while blaming the other for not doing enough. Point is, it’s all smoke and mirrors and I for one am going to remember the last eight years instead of just the last eight weeks of campaign promises. What’s the song by The Who…”Won’t Get Fooled Again“

U.S. Future: Oil Dependency Not The Problem

The U.S. economy has hummed along for the last fifteen years outpacing the rest of the world by double digits. Things were good. Businesses expanded, homeowners realized massive increases in the value of their homes and they used that equity to continue to grow the U.S. economy by leaps and bounds.

Then, in the summer of 2005, Hurricane Katrina washed away major swaths of Louisiana, Mississippi, and Alabama, taking with her people’s homes, lives, and dreams. Katrina was the starting gun to a two and a half year run up in oil prices to their current levels of $130 a barrel. Short supply, political tensions, and speculation have all conspired to keep crude prices higher than we ever imagined.

The United States finds its Achilles Heel

Countries like India, China, and Venezuela subsidize oil prices to their people, while other major industrial producers like the United States, Great Britain, and Japan pay full fare. The sudden increase in demand has helped push the United States into what some believe is going to be a long and protracted recession. And one of the root causes for all this market turmoil? Gas prices.

The United States has known for years that we needed to address our oil dependency, and yet we still spend $700 billion annually on imported crude. While long term solutions look promising, we need short term answers to jump start the economy. This is why we need to drill in Alaska right now. Just the serious consideration of drilling in ANWR will cut $30-$50 dollars off of a barrel.

Not to mention the 800,000 barrels a day we could eventually produce from the area. That’s about 16% of the country’s total crude oil production of about 5 million barrels a day. These are staggering numbers that can’t be ignored. To further reduce the reliance on oil from unsavory nations, we need to then consider drilling off the Outer Continental Shelf or OCS.

In a 2005 resource assessment report provided to Congress by the Minerals Management Service of the U.S. Department of the Interior, of the undiscovered technically recoverable resources (UTRR) underlying offshore waters on the Outer Continental Shelf, the MMS estimates recoverable resources ranging from 66 to 115 billion barrels of oil and 326 to 565 trillion cubic feet of natural gas.

That’s about nine years of oil on the low side baring any further discovery. Is this the answer? No, absolutely not. But to depend on others to secure the future of the United States is even more troublesome. The real answer lies in alternative fuel sources, but no one solution is ready to lead the way. Let’s face it, you can’t very well use a wind turbine to drive your car or fly a plane.

The end result is that we are going to depend on some form of natural resource for the foreseeable future; coal, oil, natural gas, and hydrogen from natural gas. The question is are we always going to have to have a gun pointed at our heads while we buy it?

Coming Soon: Electric Cars For Sale

The question is, will it last? Is this finally the time that the big three realize that the only way to avoid the fate of the dinosaur is to give the people what they want. Or is this just another market over-reaction that will continue for the foreseeable future, only to be cast aside when gas prices ease? You have people buying electric car kits, spending money on electric car conversions, and trying to find out exactly what electric cars are and how they work. But if gas sees sub two dollars a gallon, will we forget about the pain of $5 a gallon gas?

Most people say no. Most people realize we have gone down this road before and they are not willing to get caught behind the eight ball again. Problem is, no one tells car makers like General Motors.GM is preparing to rollout the Volt in model year 2010. They can’t afford to be labeled as the company that killed the electric car….again! So they will chug along hell bent on making sure this car hits the market. If gas is cheap again, I assure you that consumers will pick up right where they left off and drive up demand for SUV’s and other gas guzzlers.Then GM will dump the Volt, swear their allegiance to the truck platform, and ramp up manufacturing on a large scale once again. All in time for some other world catastrophe that will force oil prices skyward….you get the idea. Point is, let’s all learn from history on this one.

What do you think?

1. Are gas prices going to remain high?

2. Are electric cars viable alternatives to their gas swilling cousins?

3. If you ran GM, what would you be doing to move your company in the right direction?