Lowering Oil Prices will not take 10 years

**Five-0** · 07-15-08, 06:46 PM

http://kudlow.nationalreview.com/pos...ZmNDVmMjA0ZWY=

Tuesday, July 15, 2008

Bush Says Drill, Drill, Drill — and Oil Drops $9! [Larry Kudlow]

In a dramatic move yesterday President Bush removed the executive-branch moratorium on offshore drilling. Today, at a news conference, Bush repeated his new position, and slammed the Democratic Congress for not removing the congressional moratorium on the Outer Continental Shelf and elsewhere. Crude-oil futures for August delivery plunged $9.26, or 6.3 percent, almost immediately as Bush was speaking, bringing the barrel price down to $136.

Now isn’t this interesting?

Democrats keep saying that it will take 10 years or longer to produce oil from the offshore areas. And they say that oil prices won’t decline for at least that long. And they, along with Obama and McCain, bash so-called oil speculators. And today we had a real-world example as to why they are wrong. All of them. Reid, Pelosi, Obama, McCain — all of them.

Traders took a look at a feisty and aggressive George Bush and started selling the market well before a single new drop of oil has been lifted. What does this tell us? Well, if Congress moves to seal the deal, oil prices will probably keep on falling. That’s the way traders work. They discount the future. Psychology and expectations can turn on a dime.

The congressional ban on offshore drilling expires September 30, so that becomes a key date. A new report from Wall Street research house Sanford C. Bernstein says that California actually could start producing new oil within one year if the moratorium were lifted. The California oil is under shallow water and already has been explored. Drilling platforms have been in place since before the moratorium. They’re talking about 10 billion barrels worth off the coast of California.

There’s also a “gang of 10” in the Senate, five Republicans and five Democrats, that is trying to work a compromise deal on lifting the moratorium. So it’s possible a lot of action on this front could occur much sooner than people seem to think.

So I repeat: Drill, drill, drill. Deregulate, decontrol, and unleash the American energy industry. Those hated traders will then keep selling oil as the laws of supply and demand and free markets keep working.

Bravo for Bush. Bravo for the traders.

07/15 01:07 PM

**pgg** · 07-15-08, 11:32 PM

Now the question is will the Dems fall in line?

**Five-0** · 07-15-08, 11:45 PM

W put the pressure squarely on them with this move. He controls the executive ban and it is gone. The Dems now control the legislative ban. Which is now the only roadblock to expanded drilling.

**keith720** · 07-16-08, 12:36 AM

The Dems will block this any way they can. It's too risky for them: If it works, it proves they are wrong!

**Five-0** · 07-16-08, 12:56 AM

Originally Posted by keith720

The Dems will block this any way they can. It's too risky for them: If it works, it proves they are wrong!

You seriously needed proof?

**keith720** · 07-16-08, 01:44 AM

Originally Posted by Five-0

You seriously needed proof?

I certainly don't need proof! If it wasn't for these goofs, our dependance of foreign oil would be half of what it currently is.

**Cool Breeze** · 07-16-08, 07:29 AM

I find it interesting that when the price per barrel rises, gas stations raise their prices within a few hours. When it falls, it takes them days to lower the price.

Fuggers.

**Five-0** · 07-16-08, 10:46 AM

Originally Posted by Cool Breeze

I find it interesting that when the price per barrel rises, gas stations raise their prices within a few hours. When it falls, it takes them days to lower the price.

Fuggers.

Actually there is a very good explaination for that. If you want me to tell you I will later tonight after I get home.

**Xiphos** · 07-16-08, 11:05 AM

All the oil in the world isn't going to do much for us without more refineries. This is the first step in several that need to take place.

**Cool Breeze** · 07-16-08, 12:46 PM

Originally Posted by Five-0

Actually there is a very good explaination for that. If you want me to tell you I will later tonight after I get home.

Please do. Without a logical explanation, it just seems like the little guy takes it in the rear coming and going.

**Shoestring** · 07-16-08, 01:23 PM

With the way things are, I am not getting excited yet, we will see what unfolds in teh next 6 months

If things work out as planned, we could be in a lot better shape come a year from now

**Xiphos** · 07-16-08, 01:38 PM

Originally Posted by Cool Breeze

Please do. Without a logical explanation, it just seems like the little guy takes it in the rear coming and going.

I think it has something to do with all the oil at the refineries and in the pipeline that's already been purchased at the higher prices. It's going to take some time before the cheaper oil purchased today gets transported, refined, and delivered to the gas station.

I don't understand though if that's the case why does the cheap oil today in the pipeline suddenly become more expensive when prices rise. It was already purchased at the cheaper price right?

**Five-0** · 07-16-08, 03:27 PM

I'm not home yet, but here goes anyway. I'm going to use round numbers to make it simple. Lets say there is a gas station with their tank in the ground. It costs the owner $100 to fill the tank up. The owner pays $100. That gas has been paid for at that price and is now for sale to us. The owner is contacted by his supplier when the tank is half full. He is told that his next tank full will cost $110 dollars. That is an increase of 10%. Now, if the owner keeps charging you at the $100 dollar inventory cost/rate he will loose money. He will eventually run out of gas due to not getting a full tank in the ground. If he charges at the $100 rate he will only be able to afford to fill his tank to 90% of capacity the next time he is supplied. He has to raise his price on the gas he has already purchased to make up for the increase in inventory costs. I deal with station owners regularly and they all tell me the they don't make their money on the gas. Maybe a couple of cents a gallon. They make their money on the products in the store. The gas gets people in the store. This is why the price shoots up at the hint of a supply cost increase. The margin for breaking even to a small profit on the gas is very tight. Such is the life for many small business owners. Most stations survive by just barely staying ahead of the cost of thier gas inventory. That way their gas is a cent or two below the competition. You and I go there and maybe buy a cold drink with our gas. What really sucks is that it is illegal for many gas stations to deviate thier prices with stations in their area more than a few cents. This is the law in many states. Hope that helps.

**k-9max** · 07-16-08, 05:09 PM

I always said it was something like this:

Gas station Owner: "Hey honey, do you want to take a trip next weekend".

Gas Station Owner's Wife: " Well sure honey, but how are we going to afford it"

Gas Station Owner: " Shit, sweetheart, we will just jack up the price of gas this week"

Gas Station Owner's Wife: " Ok, sounds good to me, well, let me fill up the car before you do it"

Gas Station Owner: " Ok dear, Hey, if we ass rape enough people, i might even be able to buy you a new car"

Gas Station Owner's Wife: " Oh honey, i knew i married you for a reason"

**mavriktu** · 07-16-08, 05:52 PM

To add to 5-Os' explanation,it is actually even worse for the small business guy.Since the skyrocket prices ,more have had to go to "pre-pay" or pay at the pump.Personally,where I used to get my gas,go in ,get a snack etc. and pay,I opt for debit card at the pump.How does this hurt small guy?? I haven't purchased anything inside the store,and the card company charges him 4% for taking my card.He is just plain screwed either way.

**TXCharlie** · 07-16-08, 06:42 PM

Futures exchanges also have alot to do with oil prices rising faster than they fall... When they rise, future contracts are sold that gurantees the seller that the oil will be sold at a certain price (usually a high price), and the market goes crazy with speculators. Essentially the oil is sold at a high price before it gets pumped out of the ground.

That's why McCain is right and Obama is ful of shit - The oil is sold before it's ever pumped, so new drilling will have an effect on prices long before the oil is flowing, just by killing off the speculators, thus dropping futures prices.

But then even if the spot price of oil drops sharply, all those old futures contracts (and call options) must still be fulfilled at the old higher price. That means that refinery cost doesn't drop immediately, so they have to continue to pass that along. All the brokers can do is purchase additional oil at the spot price to help average the price out. But if the big companies buy too much, the prices will shoot up again, so they have to trickle the low price oil in.

Like 5-0 said, the little guy has a similar problem - He buys the oil at a certain price before it's delivered, so if the price drops, he has to stick with the old price for a while to pay for it. And if the price rises, he has to think about comming up with enough cash from the gas he already has in the tank to purchase the next load. The only way he can do that is raise the price immediately to cover replacement cost.