For quite a few decades the political system in the US has been functioning on the concept of oscillation between the two ends of the spectrum . Most of the time that worked fairly well . When the preponderance of problems developed on the incumbent's side then it was time for a change in the leadership . However , there are issues which transcend that type of partisanship . This is about one of those issues .

For this issue neither the left nor the right has gotten it correct . I am referring to the price of oil . It is well known that the price of petroleum fuels have an enormous effect on the US economy . Most of the recessions were preceded by a large increase in the price of oil .

But the partisan opinions on this issue consist of the usual blame aimed at the opponents . The left usually complains bitterly that it is speculators who drive the price of oil . [BTW , I do not mean to include every left leaning person in that description .]
There have  in fact  been some speculators who have been charged with manipulating petroleum prices and making huge profits by doing that .
Here , for example is an article from last year about that subject .
But if you read it carefully , you will see the following significant excerpt :
" The price of crude during the months of the alleged misdeeds changed very little, generally staying within a $10 range but the traders made their money off the daily fluctuations. Crude traded at $99 a barrel Jan. 2, 2008, and ended March 2008 at $101 a barrel. "

There it is . It is possible to make small manipulations in the price and still make large profits . That's what these speculators did . But they did NOT drive large changes in the price . And that is the point . It is not possible to create long trends in the price by manipulations unless you are someone who controls a major amount of supply [like OPEC] . The most that can be done by speculators is to day trade on small changes . But that has no effect on longer trends and larger price changes . One more thing : These were no ordinary speculators . They were able to manipulate the price because some of this cooperating group were in the energy business . They knew the details of how to buy petroleum and how to dispose of it . 

All right , so we've demonstrated that it is not speculators who have driven the recent volatility in petroleum prices . But what is it that is causing those enormous gyrations ?
And now it is the right's turn to be criticized .They assert that if we only had another George W. Bush type as President , he would pull  some strings [especially if he had contacts in the oil industry] and the price would magically recede .
Oddly enough , I think there was something to that . It was possible only a few years back to influence the direction of the price by having connections in the global oil industry . That was the good news . But now for the bad .

That approach is no longer possible . Why you ask ? Here is a summary of an important article just published in the science journal Nature .
The conclusions it makes are unambiguous and not just a little scary . Here's one of them :
the economic pain of a flattening oil supply will trump the environment as a reason to curb the use of fossil fuels.

"Given our fossil-fuel dependent economies, this is more urgent and has a shorter time frame than global climate change," says James W. Murray, UW professor of oceanography, who wrote the Nature commentary with David King, director of Oxford's Smith School of Enterprise and the Environment.

The "tipping point" for oil supply appears to have occurred around 2005, says Murray, who compared world crude oil production with world prices going back to 1998. Before 2005, supply of regular crude oil was elastic and increased in response to price increases. Since then, production appears to have hit a wall at 75 million barrels per day in spite of price increases of 15 percent each year.

"As a result, prices swing wildly in response to small changes in demand," the co-authors wrote. "Others have remarked on this step change in the economies of oil around the year 2005, but the point needs to be lodged more firmly in the minds of policy makers."

The rest of their explanation has to do with the details of the supply of oil and the problems with the recent discoveries as well as the economics  involved . If you are at all interested in this subject read the link . To conclude here is the graph which summarizes their work . Those who understand scatterplots will find it compelling and hard to ignore . It shows a clear case of "inelastic supply" in the petroleum industry .

 © 2012 by Rich Scott . All rights reserved .

Tags: US-economy, global-warming, peak-oil, petroleum, politics

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I know there is a supposed "everyone knows" position on the right that George W. Bush opened up more acreage to oil and gas exploration and that brought down the price at the pump. Now, even if that was true then (and there is no reason at all to suspect that it was), it is no longer. Barack Obama has opened up millions of acres to oil and gas exploration and is in the process of opening more, yet the price at the pump is rising to record levels. In my mind that gives the lie to the idea that the President's stand on exploration has any effect on the price of gas at the pump. It's simply right wing bullshit and a politically driven lie.


I covered that in my article :
Oddly enough , I think there was something to that . It was possible only a few years back to influence the direction of the price by having connections in the global oil industry . That was the good news . But now for the bad .

That approach is no longer possible ....

A most excellent article Rich! 

Well, that it that. The day has come that we have maxed out the consumption of oil, and all that can happen now, is that prices will go up. The sooner that the worlds nations come to this same conclusion, the quicker we can come up with an alternative fuel.

I don't see this a political move. The day has come that both Democrats and Republicans have to know the common sense of this situation. Now, instead of fighting over climate change, they might have to work together to solve this problem, before it eats into our economy even more.

Thanks P . Now if only I can get a few more hot headed replies from both the left and the right , I'll have a hit on my hands . Yuk yuk ...

BTW , although oil prices should trend up there will also be more volatility . That is what the graph shows . Small changes in either supply or demand will cause large changes in price .

Really a great Article Rich!

Not read all the links and will be back afterwards. It does seem though that there is no way that we can expect supply to ever meet demand again in a way that is efficient or affordable. It's time to pull a "Manhattan type program" and get alternative fuel sources figured out ASAP!

Thanks Larry . Something different is needed . Of course my suggestion has never changed . It was my first article on our Grouply site . Can you remember that far back ?

Barely, It seems you been an advocate for electric vehicles but I seem to barely rememcber some type of hydrogen dealie....

Yup electric cars ; That was it .Your memory is doin' fine .  And it would work to free us from our petroleum addiction today .
But in general anything which improves the fuel efficiency of transportatation system including fuel cell vehicles would be a workable solution .

For those who argue that oil reserves have been increasing, that more crude oil will be available in the future, the co-authors wrote: "The true volume of global proved reserves is clouded by secrecy; forecasts by state oil companies are not audited and appear to be exaggerated. More importantly, reserves often take 6 -- 10 years to drill and develop before they become part of the supply, by which time older fields have become depleted."

Ok now this is something that we should not be a problem. A little transparency could go a long way and there is no reason why the forecasts can't start to be more truthful either.

"Historically, there has been a tight link between oil production and global economic growth," the co-authors wrote. "If oil production can't grow, the implication is that the economy can't grow either."

Placing all our economic eggs in one basket isn't great. No more gold standard, we now carry around a quart of oil in our wallets.

Transparency might be good for the economists . I'm not sure what it would do for the economy .

I like your analogy : "a quart of oil in our wallets" . It also indicates how messy things might get [in our pants !] .

Transparency might be good for the economists . I'm not sure what it would do for the economy .


Well yeah that's true; but still, it might help to narrow down what's actually transpiring on the supply front. Reading through some of that link again and ya know, this is not an easy task trying to pull energy outta the ground.

" this is not an easy task trying to pull energy outta the ground. "

Not today . It hasn't been that way for a long while now . It seems that all of the easy-to-get oil has already been gotten . Now they've got to do extraordinary things to find new petroleum , like fracking and deep sea drilling . No wonder they are planning on exploring the ice free parts of the Arctic [at least that is what the Russians are doing] .


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