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Democrats and Offshore Drilling |
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Written by Value Seeker
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Tuesday, 22 July 2008 |
There’s no doubt in my mind that the price of oil is hanging over investor’s heads. Last week’s rally was in no small part spurred by the sudden and steep drop in oil prices. There are a few reasons for last week’s oil price drop, but Bush’s push to allow for offshore drilling definitely played a part.
I believe offshore drilling affects oil prices in two ways. First, by eventually increasing supply, it drives down price; straightforward economics. Opponents of oil drilling argue that the oil won’t be available for ten years, but anyone who has taken economics 101 knows that the market takes into account that a significant crop of oil will be available in the horizon, which will decrease the price. Furthermore, I do believe there is a significant amount of oil speculators in the market that are artificially driving up the price. There’s a great debate about this. I have no inside or special knowledge, just based on the massive amount of trading of oil ETF’s like USO and the general hype on TV makes my gut believe there is a bunch of people betting on the continued increase in the price of oil. By actually doing something here and now about it, instead of talking about doing things, I believe we will scare the speculators into selling, creating an extra push downward in oil prices.
To be up front and forthright, I hope oil goes down. Not only do I hold many long positions in the market, I am also short USO. So I sure hope oil goes down. Right now, the main group indirectly boosting oil prices are the democrats in Congress. While they want oil to go down just like everyone else, they nitpick and kill any chance of doing anything significant to actually combat oil prices.
Drilling offshore is the most clear example. While people can rightfully argue that it’s not clear how much oil will go down if we allow offshore drilling, it’s clear that it WILL go down. So whether it’s a lot or a little, it’s a step in the right direction. So why not allow it? The democrats don’t seem to be putting together any sort of logical argument against it. At first, I thought it was just over exaggerated environmental fears. These fears are the result of an oil spill about 40 years ago, in a time when there were no computers. Needless to say, technology has improved since then and anyone who has any knowledge of the industry at all seems to think the risk of a spill is negligible.
But it does not seem that Democrats are playing up environmental fears. Instead, they argue we should focus on drilling elsewhere and that the oil companies should explore the leases they already have. The oil companies respond that either the leases are in areas that are not good or it is impossible to get permission to drill on those leases because of other governmental regulation. The Democrats then just whine that the oil companies are evil and should drill.
From what it seems, the Democrats just don’t want to allow offshore drilling because they just seem to hate oil companies. It is a primitive, pathetic response to a significant national problem. The oil companies are just like any other profit seeking company. If they can profitably drill on any lease they own, they certainly will currently. Telling them that they should drill in places where they cannot may make the Democrats feel good, but we should expect more from our politicians than to just make use feel good.
Not only are the Democrats opposed to drilling, they are opposed to the other proven form of power, nuclear power. France is able to generate 40% of its electricity from nuclear power (I’m not sure on this figure; it may in fact be higher). If they can do it, why can’t we? Right now, it’s excessive government regulation resulting from the fears of Chernobyl-like incident…you know, something that happened in the Soviet Union over 20 years ago. Fearing a Chernobyl like incident in the US is about as logical as fearing Stalin-like gulags popping up in Alaska for political criminals.
The Democrats talk about a man on the moon type program where we’ll move off of carbon-based and nuclear emissions and towards happy, renewable energy. While I’m for renewable energy just like everyone else, I’d rather not have the government bet the economy and the stock market on hope when there’s some clear, realistic solutions that can be implemented now. Drilling offshore and nuclear power is not mutually exclusive with increasing solar power and wind power. As we develop renewable energy more, we can use it. In the meantime though, we need something to power our society besides hope and whining. Perhaps if Democrats actually had a stake in oil’s price going down, like I do, they’d see the light.
Disclaimer: Author is short USO |
