Sushi Money

So let me get this straight.   Officials around the world and within the U.S. say oil prices are at record highs because of the fundamentals of supply and demand.  We don’t have enough supply, and there’s too much demand. And speculation is not to blame.

And yet the great oil debate continues with many of the oil producing nations saying they don’t intend to increase supply because there is not enough demand and the market doesn’t warrant it.  Instead they blame excessive speculation as the real problem.

OPEC’s Secretary General Abdullah al-Badri called for measures to curb market speculation, a factor the Organization for the Petroleum Exporting Countries has said is driving prices to unjustified levels.

“We are not happy with the current level of price for one reason. It has nothing to do with the fundamentals,” he told the Reuters Global Energy Summit on June 10.

Saudi Arabia’s oil minister Ali al-Naimi says: “I am convinced that the supply and demand balances and crude oil production levels are not the primary drivers of the current market situation and that markets are already well-supplied.” (At the Jeddah Energy Meeting in June.)

He also says, “Supply is enough. The price is driven by many, many causes — most of which is speculation.” (At the World Petroleum Congress in Madrid June 30)

But others disagree, and even commodity experts within the U.S. argue over the Hunt for Oil Villians with many believing that speculation and futures contracts play little role in price increases. 

But then there’s the oil companies. Oil executives also think it’s a supply and demand issue.  The oil companies cite the lack of new supplies, and not speculators, as the reason for high oil prices.

Tony Hayward, chief executive of BP said the argument that financial investors buying oil futures were behind oil’s record levels was a myth.   “Supply is not responding adequately to rising demand,” he said at the World Petroleum Congress in Madrid.

At the same conference, Shell chief executive Jeroen van der Veer said “We don’t think that the financial markets are leading the speculation, probably they follow what other people fear as long-term fundamentals; I do not think that you can blame speculation for the oil price.”

Sounds like the U.S. is being squeezed from all corners and no one knows what the heck is going on.  And yet here we are with oil over $140 per barrel.  

Meanwhile the U.S. Congrees is scrambling to do something, anything, to placate voters.  And instead of blaming oil companies as they’ve done for decades, they’re finally looking for solutions.  Apparently they’ll do anything to prevent increased drilling, so Congress is trying to reign in speculation with at least nine proposed bills.

And this is not just a U.S. issue of course.  Officials in the UK are now trying to determine what’s to blame for high oil prices.  And think of the effect on poorer nations, and those living in poverty?  It’s a harsh reality, but the number of people suffering and dying from hunger is only increasing as fuel prices influence global economics.

Senator John McCain is now pushing for Energy Security and an expansion of domestic oil production.  Personally I think it’s about time.  It’s a valid point: In 1969 we sent astronauts to walk on the moon, yet in 2008 we are bankrupting our economy because we have not planned ahead for energy independence. 

The U.S. has not increased domestic U.S. oil production capacity in over 30 years, and instead we have placed ourselves in economic servitude to hundreds of foreign oil producers.   The last U.S. oil refinery was built and began operating in 1976, and for many years since refineries have operated near 90-100% of capacity.  Yet in over three decades, no new refineries have been built due to the burden of environmental and political regulation. 

And the U.S. is the only country in the world in which oil companies have been legally prevented from drilling for new oil reserves in order to produce enough gasoline and diesel fuel to supply our needs.  

If the Global War on Terrorism is about protecting America and other free nations at home, then we should be willing to do whatever it takes to bring down oil prices.  Our national security is not solely affected by terrorists abroad who wish to do us harm.  National security is also about economic viability. People are afraid of being able to sustain themselves and their families over the long term.

In the name of environmental activism and global warming mania, the U.S. and other nations have seemingly become bent on a course of economic self-destruction that harms not only U.S. families and individuals, but possibly has led to increased hunger and starvation of millions of humans across the world due to biofuel emphasis such as ethanol production.

“It’s very hard to imagine how we can see the world growing enough crops to produce renewable energy and at the same time meet the enormous demand for food,” says Professor John Beddington, the UK’s Chief Science Advisor at a sustainability conference in March 2007.   “The supply of food really isn’t keeping up.”

“By 2030″, he said, “the world population would have increased to such an extent that a 50 per cent increase in food production would be needed.” By 2080 it would need to double. But the rush to biofuels – allegedly environmentally friendly – meant that increasing amounts of arable land had been given over to fuel rather than food.

It’s a delicate balance.  U.S. environmental regulations are a good thing in general.  We appreciate and need clean air, water, forests and resource diversity. But taken to the extreme, we can tie our hands economically and end up hurting real people and the ability to grow the economy. I’m all about conservation and stewardship of natural resources. But people must come first in terms of the decisions for how we balance resource use. I don’t believe it is mutually exclusive- I think we can both protect the environment and balance resource use such as drilling for oil in ways that are environmentally responsible.

Business and consumer confidence are in my view the preeminent factors influencing economic strength going forward.  Whatever we do in regard to high oil prices must be framed in the context of assisting consumers and companies with improving their economic fortunes. 

If we have learned nothing over the last century it should be that a rising tide does indeed lift most, if not all, boats.  But at present, as the tide continues to recede this year we are seeing many boats in the name of job cuts, bankruptcies and foreclosures, left on the beach of the dwindling U.S. economy.

While Congress, economists and other experts are trying to figure out “who’s on first” we just need to roll up our sleeves and get busy becoming energy independent. 

Abbott and Costello were funny decades ago, and will still be funny many years from now. High oil prices are not very funny to most Americans and neither is watching the great oil debate in the media. But just maybe we’re finally recognizing that we need to do something different, and that’s a start.

For the record I agree strongly with Thomas Madden: America’s Days Aren’t Numbered. On this 4th of July we have much to be thankful for, and much to look forward to.

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