Thursday, April 28, 2011

Why are oil prices high?

There are, of course, a lot of ideas out there. I read this morning it was the fault of the Republican takeover of the House. Of course, the House hasn't been able to do anything that is actually constructive, because of the Senate and the White House.

Another group to blame are speculators. I'm sure they have something to do with it, but I don't think the blame is all theirs alone. Then there's the Middle East. Actually, most of the oil is still flowing, so that can't be it all by itself. And when hasn't there been turmoil in the Middle East?

Oil companies. Must be them. Let's investigate. Of course, this has been tried before. Or let's take away some of their tax breaks. That $4 billion would reduce the deficit. Oh wait. Obama wants to "invest" that money in green energy projects. The hell with the deficit. (Deficit under Bush was bad; deficit under Obama is good, right? Or at least that's what Krugman says.)

Or is it the policies of the Obama administration that is driving up the price? I don't think anything Obama or his minions have done has helped. Actually, I believe he wants higher prices to force us to adopt his "green" ideology. He has said so himself.

Most likely, it is a combination of all these factors. Here's some actual figures. You can come up with your own conclusion.
According to projections made by the Energy Information Administration in April 2010, the Gulf of Mexico should have produced 1.84 million barrels of oil a day in the fourth quarter of 2010. Instead, according to the most recent EIA estimate, due to the Obama permitorium, the Gulf only produced 1.59 million barrels. That is 250,000 barrels a day in lost production. Overall, since Obama instituted his drilling moratorium, oil production from the Gulf is down more than 10%.

But while Gulf oil production is down from pre-moratorium estimate, total oil consumption is actually higher than EIA predicted last year. Total crude oil input to refineries is up from an estimated 13.85 million barrels a day to an actual 14.25 million barrels. But if domestic production is down and consumption is up, where is the extra oil coming from?

Foreign oil.

While oil production in the Gulf is down more than 10% from April 2010 estimates, net crude oil imports are up 5%. At $83 dollars a barrel (the approximate average price of oil in the fourth quarter of 2010) that means Obama’s oil drilling permatorium increased American dependence on foreign oil by about $1.8 billion dollars in the fourth quarter of last year alone. The numbers only get worse as Obama’s permitorium further cuts into production. A Wood Mackenzie study predicts that for all of 2011 the permitorium will result in the loss this year of about 375,000 barrels of oil a day.

More imported oil also means higher prices at the pumps. The EIA explains: “Retail gasoline prices tend to be higher the farther it is sold from the source of supply.” It costs more money to transport oil to your gas station from the Persian Gulf than from the Gulf of Mexico.
And another factor not mentioned: Our huge deficits, and the falling value of the dollar. Oil is traded with dollars and when the dollar goes down in value, it takes more dollars to pay for oil.

Isn't it time we adopt an energy policy based on reality? Or just maybe a policy at all?

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