OLEAN -- I watched the much-praised movie "There Will Be Blood" last weekend, the film for which Daniel Day-Lewis won the best-actor Oscar in his darkly compelling depiction of an independent oil man in California around the turn of the 20th century.
The main characters were driven by ambition, greed and a searing fiscal lust for crude oil, a magic, revolutionary substance they already understood -- in an unspoken but clearly evident way -- would drive our economy, modernize humanity at warp speed and drastically dictate our way of life for decades to come.
Gee, I remember thinking at the film's end, it's only a century later and our insatiable human appetites have already used up most of the planet's supply of this miraculous stuff, petroleum. Silly me. Good thing I did a little research before writing that crap as a hasty conclusion.
The earth, it turns out -- geologically speaking -- is still awash in untapped oil.
So why are gasoline prices so high? (The national press keeps quoting $3.50 a gallon on average, but around these parts -- ironically the first discovery region of American crude -- it's more like $3.73 a gallon. Reliable prognosticators assure it will exceed four bucks a gallon by summer.) So why does a spot price of nearly $120 a barrel and heading north threaten to drive us into inflation and recession, both at once, and to ruin our recently rolling national economy for years?
Already families are canceling summer vacations. Airlines are going bankrupt on a weekly basis -- the ones still doing business planning to charge us an extra five or 10 bucks for sitting near a window or aisle, and another sawbuck for packing two bags. Like that's going to dry their red ink. Pickup truck drivers -- the chosen conveyance of choice in this area -- are bitching that it takes $65 or more to fill up. If you drive an 18-wheeler for a living, you already know you can drop a cool $1,000 at the diesel pump for letting the needle go anywhere near E.
Doesn't pricing still follow the law of supply and demand? Especially for commodities?
The experts and analysts and pundits and commentators and anyone with a keyboard give us various explanations for why the answer is No:
Specialty journalists, such as Jad Mouawad of The New York Times, list more reasons:
Mouawad quotes experts at the Carnegie Endowment for International Peace as observing that if China ever achieves the level of American energy use, "five more Saudi Arabias would be needed just to meet oil demand."
Others blame stock brokers, commodities traders and insider speculators for driving up the prices unnaturally and without thought for country or fellow citizen. Paul Roberts notes in the Christian Science Monitor that oil is "especially vulnerable" to speculation and manipulation: "The global oil system is highly opaque, It has so many pieces -- producers, refiners, shippers, and distributors -- that no one knows precisely how much oil is in any given place at any given time. This means that estimates of how much excess inventory is in the system -- and thus, how big a buffer we have against a disruption -- can change rapidly."
But wait. Not everyone agrees with this doom and gloom. Raymond J. Learsy, a former commodities trader who wrote the enlightening book "Over a Barrel" on this subject and frequently blogs on HuffingtonPost.com, claims there's plenty of oil -- the big producer nations just don't want to provide it to us, no matter what the price.
Learsy last Friday tore into Mouawad on HuffingtonPost for failing to mention that the 13-member Organization of Petroleum Exporting Countries (OPEC) "by its own admission has held 1.2 million barrels off the market since the end of 2006 that it could readily produce." Learsy claims "Saudi Arabia and OPEC have turned a cold shoulder on President Bush's lame entreaties as well as that of the International Energy Agency to produce more, not because they can't but because they won't."
Learsy writes that listing production shortages on the horizon, nation by nation, is "one of the oil patch's banner headlines to screw up the price another notch." He points to promising new finds off Brazil's coast, to upward revisions of Saudi Arabia's phenomenal reserves (now estimated at 700 billion to 1 trillion barrels), and to increased production in Iraq, "whose reserves are estimated to be comparable to those of Saudi Arabia with barely 10 percent of its land mass having been prospected for oil." (At last, a cogent reason for the U.S. military being in Iraq ...)
The Russians still have plenty of oil but haven't developed the management structure for getting it out, holds Learsy. He claims "there are still trillions of barrels of oil around to be found and tapped, from offshore Alaska ... to coastal Africa, the South China Sea, the Gulf of Siam, Greenland, the Arctic, offshore Sakhalin, Kazakhstan, Uzbekistan, and untapped reservoirs offshore the United States, the Gulf of Mexico," and on and on.
Learsy cites the enormous transfer of wealth associated with speculator-driven high oil prices, and reminds us the late Leon Hess, legendary founder of Hess Oil (and once owner of the New York Jets), told a U.S. Senate committee fewer than 20 years ago that "I'm an old man, but I'd bet my life that if the Merc (the New York Mercantile Exchange, where most of the speculation goes on) was not in operation, there would be ample oil and reasonable prices all over the world, without this volatility."
Dubya is under pressure from Congress to do something, anything, to bring relief. One suggestion, from House Speaker Nancy Pelosi, is that President Bush -- who has the sole power in this -- stop placing 70,000 barrels of oil a day into the federal Strategic Petroleum Reserve, established in the mid-1970s after an Arab oil embargo disrupted both supply and the economy. This reserve is stored in artificial caverns carved from salt domes -- two in Louisiana and two in Texas -- and currently holds a little more than 700 million barrels, provided by oil companies in lieu of paying federal royalties.
That's abut $80 billion worth of petroleum and represents about a two-month national supply. The idea is that letting those 70,000 barrels a day go on the national market would drive down the price of gasoline and heating oil significantly. Dubya actually tried that in 2006, but refuses to do it again because, he says, it didn't work.
All three presidential candidates have called for suspension of adding to that reserve, but White House spokeswoman Dana Perino said Friday "it has been ineffective when it has been used to manipulate the price in the past."
More interesting, five senators -- including New York's Democrat Charles Schumer -- on Thursday sent Dubya a letter asking him to halt billions of dollars of sophisticated arms sales to Saudi Arabia and other Persian Gulf producers, including United Arab Emirates and Kuwait, unless they start pumping more oil and selling it to us.
The senators point out that Saudi Arabia admits it can produce 11 million barrels of crude a day. It was producing about 9.5 million barrels a day just three years go, then reduced that to 8.7 million barrels in 2007. Think there's a message there?
The weapons we intend to ship include Patriot defense missiles, precision guided bomb technology and missile system upgrades, and total about $11.5 billion. The senators say they will seek a resolution blocking the arms deal. Schumer said the Saudis "have to understand that this is a two-way street ... we provide them weapons, and then they rake us over the coals when it comes to oil."
My, my -- how politically incorrect.
Of course, Congress doesn't have the balls to bring about such an action. The five senators are just strutting their stuff. The defense industry lobbyists would shut down the campaign money supply for the offending solons until their election war chests resembled withered prunes.
The Saudis, according to various sources, can drill, produce and transport crude oil to their shipment ports for about $1.50 a barrel. According to Russell Tyldesley, who writes economic commentary for the Baltimore Chronicle & Sentinel, "if a free market prevailed in oil, the price of a barrel would be about $10 today."
But we don't want to offend the Saudis because they routinely spend billions on our defense industries for weaponry. (They bought $25 billion or so worth of military hardware after Saddam Hussein and his Iraqis invaded Kuwait almost two decades ago.)
We can't place all the blame on the Saudis, of course. After all, it is their oil, and we in the United States are the biggest oil piggies on the planet. Our oil and gasoline prices are still some of the lowest in the world, with the lowest energy taxes and the longest daily commutes. We still drive the least fuel-efficient cars on the road, anywhere. We still use about a quarter of the world's entire oil supply.
When Congress last year approved fuel efficiency standards for vehicles (over the hue and cry raised by automotive industry lobbyists), it was the first such action in three decades -- 30 years!
Fleetwide standards will now have to be 35 miles to the gallon by 2020 -- a dozen years away. Big whoop. If we all got a Honda or Hyundai or some other rice burner we could meet that next week.
| Niagara Falls Reporter | www.niagarafallsreporter.com | April 29 2008 |