Last week, for four days running, the world oil price fell. By Friday, July 18, oil was under $129 a barrel - down from its high of $147 on July 14. Does that sound like pretty big news? Bzzzzztt! It is no such thing. It isn't news at all in Big Media's alternate universe.
The conservative Washington Times vaguely ascribed falling oil-prices to "concerns about America's economic health." I scoured the Internet and news outlets for alternate explanations, but saw no reference to a connection between falling oil prices and a signal event: Mr. Bush's July 14th Executive Order opening coastal waters to drilling for oil. Big Media evidently saw no connection, either. It was barely mentioned - the proverbial Elephant in the Parlor everyone tried to ignore.
Mr. Bush's Executive Order reversed one originally signed by his father, President George Bush, in June 1990. At that time, a ban on ocean drilling suited the national temper. Gas was just over $1.00 a gallon, and Iraq had not yet invaded Kuwait to start the First Gulf War. In 1998, when President Clinton extended the Order through 2012, gas was under a dollar a gallon. Americans felt they didn't need the offshore oil. But conditions have changed.
President Bush's order can't fully enable new drilling because Congress has renewed its own offshore ban every year since the 1980s when it funds the Department of the Interior. Mr. Bush has asked Congress to cancel that ban, both offshore and in the Arctic National Wildlife Refuge (ANWR), to stabilize prices. Originally he wanted Congress to move first, but he reportedly changed his mind when Congress refused to hold hearings or take the issue seriously.
Republican senators and representatives have seconded Mr. Bush's call for Congress to lift its restrictions, but Democrats oppose the move strongly. Speaker of the House Nancy Pelosi will allow no drilling legislation to come to a vote. Democrats' signature mantra is that new drilling will not affect current prices because it will take years to retrieve any oil. Numerous "analyses" predict that oil will reach $200 a barrel before year-end. Strong environmental lobbies oppose any coastal or Arctic drilling, high prices or not.
I doubt if a week can be cited as a market "trend", but I do find it suggestive that oil prices fell precipitously in just the four days following Mr. Bush's Executive Order. His action wasn't sufficient to get drilling started - although it could have been, had he cited "national security" - but it was an indicator of which way the political wind is blowing now.
Smart people who play world markets for big stakes correctly saw Mr. Bush's action as a reflection of the temper of the American people. With the November elections nearing, and gas bumping toward $5 a gallon, voters are paying through the nose at the pump and watching their investments and the economy crumble. They've had enough, and they want that oil developed. Repeated polls confirm this.
Soon even Democrats will get the message and release those areas for drilling. Our vast oil shale deposits will be opened for development, too. A change in attitude will wash over the country like a great wave. It will be political suicide to deny the country the oil that we know we have, while voters bleed, financially.
What about the claims that it will take years to produce more oil and that allowing this drilling won't affect the price at all? This is where many politicians show their lack of understanding - or perhaps willful ignorance - of markets. Of course, current supply and demand influence prices. But commodities futures are bid on basis of what investors think market conditions will be at later times. With vast deposits of oil currently fenced off from development by environmental lobbies, and with no political leadership pushing to change those conditions, speculators in oil futures saw nothing on the horizon to keep prices from spiraling upward indefinitely. This is an old principle of price prediction: same conditions = same price-direction.
Conditions eventually do change, of course. What goes up usually comes down. (An even older principle.) I have read comments from Middle East oil producers who agree that oil should be trading at no more than $80 a barrel - probably less. The premium above that price merely reflects expectations that present conditions will not materially change.
This was a situation begging for a "correction" - as market insiders like to call it. On July 14, that correction commenced. The political landscape changed when Mr. Bush took action. Many traders and speculators began to back off aggressive buying and stockpiling of oil futures that they planned to hold only for a higher price. The slide began. On July 18, I read a market prognostication indicating that most futures traders have retreated from certainty about $200 oil. Indeed, many now think $147 was the high point for the foreseeable future.
If Mr. Bush's new order caused oil to fall nearly $20 in just four days, what will happen when Congress finally lifts its restrictions? In previous articles I have suggested that the world oil market will crash. How far? Impossible to know. Maybe as low as $60 a barrel, but I have seen estimates as low as $30 a barrel. Even a fall to $60 would have far-reaching effects.
For one thing, biofuels would become economically non-viable if oil crashed. (Ethanol is not competitive with even $5.00 gas.) Food prices could fall as grain crops revert to food. Stock markets would rise on greater optimism. In the recent week, the Dow Industrial Average rose 500 points as oil fell. When new drilling actually begins, markets could really take off. A boom in the world economy is not beyond possibility.
A continuation of this trend toward lower-priced oil, rising stock markets and increased economic optimism - all stemming from a reborn national determination to become self-sufficient in energy - could radically alter political fortunes, of course. The American economy could rise, Phoenix-like, from the Slough of Despond it has been in for the last year.
Thus, Democrats could lose "the economy" as their prime issue. Barak Obama's "I'm your only hope of salvation" campaign might crash, too. After all, when things are finally going well, why take a chance with an unknown guy who tried to keep gas prices high and wants to raise your taxes? Voters often have notoriously short memories, but come November they'll know which senators and representatives delayed the new drilling that eventually stopped the explosion of oil prices.
None of this is certain, of course. On July 21, oil went up $2 on fears that a hurricane might strike oil platforms in the Gulf of Mexico. Today (July 22), oil slipped under $128 when the hurricane fear evaporated. Commodities markets are notoriously volatile - a feather can tip them over. Besides, a partial promise to drill can do only so much.
The political wild card here is the "yearning for change" that seems to blossom every 16 years. Analysts say it's because recycled socialism actually sounds plausible to a new generation of voters. Promises of new goodies - apparently free of charge - look great to them. They don't yet know how high the price will be, and that they'll be the ones paying it in the future.
Another unpredictable factor is the maddening amnesia that causes voters to forget who did what, once the emergency (like high gas prices) has passed. Politicians who stubbornly opposed drilling while gas-prices went crazy - who were finally dragged, kicking and screaming, into permitting offshore and ANWR drilling - will later stand up and boldly blame George W. Bush for not moving more quickly. They will shamelessly maintain that they always wanted Americans to have reasonably priced fuel. Many befuddled voters will elect them again.
In previous articles I called this the Moron Vote. Some readers wrote to complain that I was dissing them. So to avoid more hurt feelings, let's just call it the Amnesia Vote. I advise all voters to keep a small notebook so they can recall who helped them, and who didn't, during difficult times. It's not a sin to misread something the first time around. But it is criminally stupid to refuse to learn and be unable to remember who your friends are. Nothing will ever change unless we become politically astute enough to vote our interests.
The veil should now be lifted on the link between oil-drilling policy and oil prices. If we refuse to develop new resources, prices on oil futures will just keep going up. But if the nation's leadership acts decisively to develop those resources, prices will stabilize. They might even go down.
The claim that new drilling permissions will not affect price was a lie. We can see that now. Let's try to remember it in November. The old gang who peddled that lie - including their flashy Prophet of Change - must go. They are not helping.