Oil Is Not Typical Supply and Demand

More like “Over A Barrel”.  But now that we’ve taken the first step toward off-shore drilling in the US, the impact is already seen.  Because it’s really not about supply-side economics as much as perceived supply-side economics.  And now the perception is that the supply won’t be in a strangle hold any longer.

President Bush takes the first step, dropping the Presidential Ban on domestic drilling.  The pundits say “It doesn’t matter what Bush does, it will take Congress dropping their ban and approval by affected states to open up the drilling, and then 5 to 10 years before there is any impact on oil prices.”.

The current price of oil, as we should all know by now, has nothing to do with the normal mechanics of market driven pricing.  Oil pricing is managed as a commodity, so there’s no real competition to drive the prices down, and those that fall in the “demand” space will have a level of demand driven by the basic need for survival.  Consumers, even those that buy their gas at Sam’s Club, really have no direct influence over the price of oil the way they do over things like chips and pop and houses.  And yet the cost of delivery of the oil is far below the awful price that we’re paying now.

And on the supply side, I have yet to see situations where gas stations are running out of gasoline.  This is not the 1970s.  No, the only problem here is the limited availability of oil from sources that aren’t trying to gouge us, and aren’t manipulating the markets to support the gouging.

And yet, all of the major market analysts, left-wing pundits and even the Wall Street Journal, fail to acknowledge the Bush’s action is driving the price of oil down.  As we’ve said here before, if we only so much as make a decision to start drilling domestically, the oil market will suddenly shift and prices will drop.  Bush’s action is just a microcosm of what needs to happen to really move us there, but already it is impacting the price dramatically.

This is classic case of Occam’s Razor.  The simplest and most likely reason is probably the right one.  The various reasons being tossed out about why oil prices are dropping are just too much of a stretch, while the one thing we’ve been waiting for now for months seems the most obvious.

Wait for those that wish to squeeze us to suddenly start closing the spigot to try and halt our resolve.  Congress needs to move quickly on this.

Bithead has some additional commentary on this topic.

About the Author

Mr. Smith is the Publisher of The Conservative Reader. He is Partner/Owner of Ambrosia Web Technology as well as a Systems Architect for Wells Fargo. Art hold a degree in Computer Science from Drake University in Des Moines, Iowa, and is a political blogger at the Des Moines Register. Art's views are purely his own and do not necessarily reflect the views of Wells Fargo.


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