Very interesting editorial by Jay Bookman in the Atlanta paper yesterday. Here's a summary.
1. THE PROBLEM
The main problem is the sharp fall of the dollar with respect to other currencies.
2. THE CAUSE
Demand for oil is rising rapidly whereas the supply is rising slowly.
3. SUPPLY AND DEMAND
"The United States is the third-largest oil producer in the world, trailing only Saudi Arabia and Russia. We produce more than twice as much oil every day as Iran, the fourth-largest producer. Yet the 8.3 million barrels of oil we produce every day don't come close to meeting our demand of 21 million barrels a day."
4. WE DEMAND, THEY SUPPLY
To meet U.S. demand, we pay almost $2 billion per day for imported oil.
5. FALSE SOLUTION A
"The rising price of gasoline is blamed by some on the fact that no new refinery has been built in this country since the 1970s. As the story goes, environmental regulations have made it impossible to build needed new facilities."
"However, both claims are exaggerations. While no new refineries have been built, that is the result of market-based decisions by private investors, not government agencies. Until very recently, we actually had a glut of refining capacity in this country."
6. FALSE SOLUTION B
"Would opening the Arctic National Wildlife Refuge and other coastal areas to oil drilling have any effect on gasoline prices, as many politicians claim? No. Let's take ANWR as an example. Many Americans would be surprised to learn that oil produced in ANWR would be sold to Americans at whatever the global price for oil happened to be. There's no "hometown discount" ? U.S. consumers would pay 100 percent of the global price for ANWR oil."
"According to the federal Energy Information Administration, if drilling began in ANWR this year, oil production from that region would peak around 2027-2030. This would only lower the world price of oil by about 1 percent. If gasoline is selling at $5 a gallon in 2030, that would amount to 5 cents a gallon."
"The EIA predicts that as ANWR oil came on the world market, OPEC would simply reduce its production, thus keeping the global oil supply ? and the global price ? unchanged. So in the end, drilling in the wildlife refuge and offshore areas would have little or no impact on oil prices."
7. THE HARD TRUTH
"Analysts believe that world oil production is now peaking, and today's historically high petroleum prices will seem like a bargain by 2018."
8. FUTURE SHOCK
"There are no outs. Overall, an economy and lifestyle built on cheap oil will be forced to undergo wrenching changes in a fairly short period of time."
Here's the link to the full article:
http://www.ajc.com/search/content/opinion/stories/2008/06/22/oiloped.html
