Wednesday, July 09, 2008

Make the speculators pay

Walter Williams gives a great Econ 101 lesson for those public school graduates who can't seem to understand how speculators have driven the price of oil to $140/barrel.
Congressional attacks on speculation do not alter the oil market's fundamental demand and supply conditions. What would lower the long-term price of oil is for Congress to permit exploration for the estimated billions upon billions of barrels of oil domestically available, not to mention the estimated trillion-plus barrels of shale oil in Wyoming, Colorado and Utah.

Some politicians pooh-pooh calls for drilling, saying it would take five or 10 years to recover the oil. I guarantee you we would begin to see a reduction in today's prices even if it took five to 10 years for us to get the first barrel.

Put yourself in the place of an OPEC member knowing there would be a greater supply of U.S. oil in five or 10 years, hence maybe driving oil prices lower to, say, $40 a barrel. What will you want to do now while oil is $130 a barrel?

You would want to sell as much oil now, and OPEC's collective efforts to do so would put downward pressures on current oil prices. Right now, the U.S. Congress is OPEC's staunchest ally.

1 comment:

Anonymous said...

One of the voices of reason at the Washington Post.