Just had a friend send me this. Click the link for a short video, try to ignore the fact that the speaker is Newt Gingrich, and listen to the ideas -- they seem to make sense to me.
I'd be interested in thoughts/comments from those of you more versed in this topic.
1: "Punishing speculators" is ridiculous. The stock market, energy markets, bonds, food prices, are ALL speculation. Reasonable speculation that the world is producing as much crude oil today as we ever will which is about 85-90M barrels a day. From now on, it will get harder and more expensive to produce less and less oil. While at the same time demand will keep rising. Oh and 1/3 of the current reserves is 211M barrels - or 2.5 days world supply.
2: The magic new sources of oil that he is talking about, along with others he does not mention, are extremely expensive to produce. The reason that shale oil is looking attractive is because it needs at least $150 a barrel oil to make it worth it! So we probably wont run out of oil for a long time, but there is a reason it has much of it has never been accessed before. Who wants to throw money at low-quality, hard to get oil?
3: The only one that has economics and technology on his side. To bring down the price of oil, we need to use far less of it. Period.
Posted by: Chris | June 24, 2008 at 01:49 PM
Actually, now that Newt Gingrich is not the mouthpiece of the Republican Party, I've found him to be one of the most informed, forward-thinking people out there. Give him a chance, and I guarantee what he says will at the least, change your mind on the man he is now vs. who he was.
Posted by: Nicholas Paldino | June 24, 2008 at 01:50 PM
I love Newt and he is right on. Common sense and he should be running as President or VP.
Posted by: Rick | June 24, 2008 at 01:53 PM
No one really cares what I think of Newt.
However this isnt about NEWT.
We have a problem and rather than criticize the potential answers he gives, WE ALL should be doing what he is doing and try to come up with SOLUTIONS. Complaints, rationalizations and excuses do NOTHING to helpsolve the issues we face.
I don t know whether what NG says here is feasible and all that. I do know that is sounds pretty common sense, and the law of supply and demand would indicate that if we announce we WILL find our own oil, prices WILL come down( how long to actually get it to the pumps, is a question).
He seems bluntly, yet R refreshingly realistic that this is no quick fix and the full solution is years off... but we are where we are, can t change the past, and we have to start moving forward somewhere.
As I stated in the beginning, its time to use our brains collectively.. not to comdemn,criticize or complain, but to come up with solutions to problems.
At least NG is trying to solve problems instead of talking about political hogwash that doesnt mean a hill of beans.
TA Smith
Posted by: Timothy Smith | June 24, 2008 at 02:05 PM
Punishing speculators is a pretty stupid reason to release oil from the SPR. Speculators peform a tremendously valuable function in the economy: they pull future prices into the present, smoothing out consumption. They protect us from abrupt changes in price, and cause us to begin conserving sooner rather than later. It works both ways too. If policy changes (such as drilling ANWR, off shore, and oil shale) will cause supply to increase in the future, prices will ease immediately, thanks to speculators.
Nevertheless, I would like to see the government release 100% of the SPR to market. My reason is that the SPR is merely speculation on the part of the government, and it doesn't do it nearly as efficiently as private speculators do.
Posted by: Matt | June 24, 2008 at 02:36 PM
The Wall Street Journal has a good Op-Ed about this issue: http://online.wsj.com/article/SB121426475050198395.html
Posted by: Matt | June 24, 2008 at 02:43 PM
"My reason is that the SPR is merely speculation on the part of the government"
I would argue that it is a limited form of insurance carried by the government and it acts as a ballast to the system. For example if pipelines are disrupted the reserve will loan oil out to keep everything in line until things get fixed. In fact, I would argue that speculators take into account the fact that there is a strategic reserve in place to soften oil spikes. Key word, spikes. It does nothing to the slowly rising price of oil.
Posted by: | June 24, 2008 at 02:45 PM
I don't know - I'm not a big fan of going around drilling everywhere and screwing up the environment even more - not to mention even if drilling started today, how long would it take to get the oil - 3 years, 5 years? I think we need to have high gas prices for an extended period of time so REAL change starts to happen. If the government steps in now, what is the incentive to change? It seems like we should have gotten the wake-up call in the 1970s, but it didn't happen.
I think science and technology will find a way, possibly something that isn't even on the horizon today. But there has to be a motive to discover these alternatives. If gas prices go back down, some of that incentive goes away.
Posted by: Kevin | June 24, 2008 at 02:54 PM
"I would argue that it is a limited form of insurance carried by the government and it acts as a ballast to the system." That's what commodities future trading does too. It's not as though refined petroleum products like gasoline and diesel are stored in the SPR. It's all crude anyway, so why not just buy it one the world market (which is much more diverse now than it was in the past)?
Kevin: What's worse, drilling in the US, where we have a better ability to drill safely and cleanly, or exporting the problem of extraction to places like Nigeria where the environmental protections are far less stringent?
It would actually take more like 10 years to bring that oil to market. But thanks to futures traders, we could begin seeing lower prices immediately. Another counter-argument regarding the length of time: 10 years ago they were saying the same thing. If the decision had gone the other way back in the Clinton administration, we could be enjoying much lower prices today.
There's a legitimate argument to be had about the "correct" price of oil from a public policy standpoint. Indeed, higher prices do drive conservation and investment in alternative energy. That doesn't contradict expansion of domestic oil extraction, though. We can still have high gas prices without sending the money to places like Iran and Venezuela by having a larger gas tax at the same time as we drill. The revenues from that could then be used to lower the income tax.
Posted by: Matt | June 24, 2008 at 03:18 PM
I really only agree with the 3rd of Newt's points.
Also, I agree with Kevin's comment about the environment. One only needs to travel around Russia to see how the unfettered quest for natural resources despoiled a huge percentage of that country. I see the need for expanding the search for natural resources in the US but I think the process needs to be handled smartly and very carefully. I'd rather we focused our efforts on alternative forms of energy rather than just keep beating the drum for oil.
Posted by: MonkeyMonk | June 24, 2008 at 03:23 PM
I used to complain about oil prices, but I'm happy about them now because i know it will force us to come up with new technologies that get us away from depending on the middle east. I can't wait until we no longer give them billions of dollars a day and instead use solar, wind, and other renewable sources to power our new electric cars. go tech!
Posted by: Shane | June 24, 2008 at 03:34 PM
Matt - I see your point about drilling here vs. somewhere else, but honestly I would not drill anywhere new but instead focus that money and effort on finding reliable alternative fuel. (Not ethanol as that is just a joke, but that's another story.)
Also, you argue that if Clinton would have started drilling 10 years ago we'd have lower prices now - but then we'd be in the same situation with no dire need to start converting to new fuel (and probably have less oil left to boot).
I think we've already screwed up this world enough for our kids, I don't relish the thought of doing any more damage. In my gut I think some scientist somewhere will come up with a solution for this and other problems we face, hopefully by then it's not too late.
Posted by: Kevin | June 24, 2008 at 03:36 PM
I agree with the points Newt made. This is not a one way to get out of this problem. We need to do everything, drill, work on new technologies, and stop the speculators from driving the price up.
Posted by: "Mo" Money | June 24, 2008 at 03:44 PM
Matt - trading in futures helps mitigate long term risk but have no resource to remedy unpredicted local supply disruption such as natural disaster or war. In short, when things are going smoothly futures are good. But when disaster strikes I am happy to have a few nuts squirreled away. To put your faith 100% in the system is not a good strategy.
Also, can someone say how "domestic" drilling will have any major impact on US oil prices without nationalization of oil production and refinement? The DOE estimates for ANWAR are $.50 a barrel in 10 years. Lets be really optimistic and throw in all these other magic untapped wells and say they come on-line easily in 10-15 years. What are we looking at, $3 off oil? $7? That would put us back to June 1st.
Here is my solution. Rather than pump more oil which goes into the global market, work to produce clean electricity which is regional and not responsive to most of the pressures of oil. Oil man T.Boone Pickens is getting in the game with his massive ($2B) wind farm buy. Chevy is building the Volt. It is going to happen if we like it or not!
So FMFers - prepare and get used to the high price of oil by using less. That is the only option!
Posted by: Chris | June 24, 2008 at 04:11 PM
I wish Newt was on the Libertarian ticket for president this year so I could vote for him. But I guess I'll be happy to support Bob Barr!
Posted by: garyatk | June 24, 2008 at 05:08 PM
"Drill here. Drill now. Pay less." Let someone else worry about the consequences. It works for the budget, why wouldn't it work with the planet? It's the Republican way!
Is Newt isn't a mouthpiece for the Republicans anymore, why is he pushing the same program as Bush?
Posted by: Eric Goebelbecker | June 24, 2008 at 06:33 PM
If oil needs to be at about the price it is now or higher in order for extraction from certain sources to be profitable, then extracting those sources is not going to get the price down.
McCain suggested a $300 million prize for a cost-effective viable electric car battery solution. Not a bad idea, but I'd like to see that $300 million pushed into a Manhattan Project/Apollo-type initiative for battery solutions instead we seem to be good at getting results from those kinds of projects, or at least we used to be. Battery power isn't a perfect solution, but it might buy us some breathing room that throwing a similar amount of wealth at low-quality oil probably won't.
Posted by: Gavagirl | June 24, 2008 at 06:38 PM
This blog always waves the flag of "It's not what you make, it's what you spend". To which I bow.
Which in my view, when we put it under the oil perspective, translates into "It's not what you drill, it's what you burn".
Why if we believe that being frugal in our lives is the best policy? Why wouldn't it be the best policy when it comes to energy consumption/production?
Can somebody help me understand this?
Posted by: Douglas | June 24, 2008 at 11:32 PM
As a trader, I follow this very closely, the arguments about speculators is right on. I recommend ALL of you to read the Testimony of Michael Masters to the Senate Committee on Homeland Security. He sums it up nicely...
(I tried to post it here, but the URL was too long.)
Please google "index speculation demand is driving prices" and read the first link.
Posted by: Aaron | June 25, 2008 at 10:18 AM
Link to the PDF:
http://hsgac.senate.gov/public/_files/052008Masters.pdf
Interesting testimony, and some of his arguments for closing loop-holes seem right on.
Here is the thing that doesn't fly with me. He claims that speculators have "stockpiled" 1.1 Billion barrels of Oil out there "via the futures market" - but there is no stockpile. It doesn't exist. The cost of holding the oil in tanks around the world would be far greater than any profit made by running up the price.
He is arguing is that contracts for future oil are trading hands up and up for profit because money is flowing into commodities and away from stocks. But the spot price, the price that you can buy oil at today, should not be affected much by the futures market unless there is physical hoarding of Oil. Please correct me if I am wrong, but I don't see that addressed in his testimony.
Posted by: Chris | June 25, 2008 at 12:04 PM
Chris:
It's not an either/or situation. We can drill AND conserve. Just raise gas taxes, that will take care of the conservation side. That might not be the most politically popular thing to suggest right now, but it has the advantage that we could turn around and give those revenues back to taxpayers in the form of a lower income tax.
If we can pursue conservation via gas taxes, why not drill domestically? There are some pretty obvious benefits. First, we'll protect the environment better than foreigners will. Second, we enhance our national security by shifting some of our oil consumption from Iran, Venezuala, Russia and Saudi Arabia to here. The claimed disadvantages are false: ANWR is not quite the environmentally sensitive "pristine wilderness" Democrats make it out to be; it's an enormous arctic wasteland in virtually nobody's backyard. I think oil is about all it's good for, but even if you think it has value other than that, consider this: ANWR is about the size of South Carolina, but the proposed drilling would only take place in an area 1/6 the size of Dulles International Airport.
Posted by: Matt | June 26, 2008 at 12:28 PM
Matt: My point is that domestic drilling will not enhance our national security, or lower our fuel/oil prices, or do anything but give energy companies profit. That is unless we keep all that oil off the international market and require it be sold only to America and that is nationalization and would never happen.
All the drilling we can do under the most optimistic measure drops oil $5 a barrel in 10 years. It rose $5 today alone because Lybia said it *might* cut supply in retaliation to the US threatening to sue OPEC. We have no leverage and never will.
So the only argument then for drilling in sensitive places is, "well because we can" which isn't good enough considering the impact drilling does have.
Posted by: Chris | June 26, 2008 at 06:17 PM