Skip to comments.Five Ways the Government Could Make Oil Prices Fall
Posted on 03/09/2011 10:44:06 AM PST by gleeaikin
Oil's surge to more than $105 per barrel -- which has caused the average price of unleaded regular to jump more than 40 cents in less than a month to about $3.50 per gallon -- is rooted more in psychology than in fundamentals.
Globally, there's no shortage of oil, nor any lack of gasoline in the U.S., but traders' fears that the civil unrest in minor oil exporter Libya may spread to major oil exporters Saudi Arabia or Iran has led an oil price spike, led by market speculators and large end users of oil.
However, the U.S. government is not powerless: It can help take some pressure off oil's price -- if it addresses both market psychology and oil's fundamentals. Here's how:
1. Random Releases From the Strategic Petroleum Reserve
Previous draw-downs from the SPR, which currently holds 727 million barrels of oil, in 1990-91 (Desert Storm, 17 million barrels), 1996-97 (deficit reduction, 28 million barrels), and 2005 (Hurricane Katrina supply disruption, 11 million barrels) did cause prices to decline somewhat. Another sale in 2011 might do an even better job, if properly structured.
For example, if Washington announced that it plans to release, at random times, an unspecified amount of oil from the SPR, that would immediately create more downside price risk and scare some of the speculative net long positions -- for oil traders who don't take delivery of oil -- out of the market. This psychological component -- not the actual amount sold -- is the SPR's primary price weapon.
See full article from DailyFinance: http://srph.it/empNgF
I would say none, with the possible exception of different blends. I also want all current taxes actually going to roads. Not to railroads, not to bike paths, not to the general fund.......just roads.
I wonder why they didn’t suggest more drilling, nuke plants and transitioning to natural gas for trucks, buses, cars, etc.
55. Oh, boy. Jimmah Carter rides again.
1) US DOE announces it will issue fast-track permits for 20 new nuclear power plants.
(2) US also announces we will drill for our own oil everywhere we find it.
World oil prices drop to $30/barrel within 48 hours. Not to mention the jobs created thereby, and the resultant increase in the tax base.
But, I may be missing something.
The article was focused on ways in the near term they could act, not the long range. For some reason the link did not post under the excerpt. Here it is:
Fine with the first four; I’d pay the extra 35 cents a gallon rather than deal with the 5th. I’m generally against tapping the strategic reserve, but if it’s temporary, sporadic, and would be replenished, I could go with it.
But he left out the most important - open up ANWR, the Gulf, and both coasts to drilling; issue a slew of permits; and watch the speculators soil their britches.
Random SPR releases would not help much, if at all.
Increasing margin requirements would simply drive the "speculators" offshore. Duh.
Temporarily suspend "boutique" blends. Make it permanent.
If 55mph is good, how about 45mph. Save more oil and save more lives.
I have some better ideas.
1. Drill everywhere.
2. Build 10 coal to oil plants.
3. Build 20 nuclear plants.
4. End the ethanol subsidy and all subsidies to "green" initiatives, saving untold billions.
The US has more oil reserves than Saudi Arabia, China and Canada put together (I read that on FR). Get the government out of the way and develop them.
1.) Drill here, drill now
2.) Get the environmentalist whackos out of the way
3.) Fire Obama
4.) License Nuclear plants
5.) Fire Obama
"The government" wants to force us all into their "public transportation" system.
Makes it easier to keep us under surveillance, and gives easier access to us by muggers and gangs of feral children.
Insane and a false premise. Releases for price control of the SPR limit the ability to handle future oil supply disruptions leading to a greater need for Gulf Coast refineries to increase they amount of oil the keep on hand.
It is called a Strategic Petroleum Reserve for a reason. It should not be used as a political football.
Let the market crash.
But would only have a short term effect.
Face it, this Administration, the Environuts, the Fascist, Socialism loving Left, all LOVE killing America. This is just ONE avenue of their destruction.
Destroy our currency is another. Fiscal Moron Ben is working on that.
The destruction of our dollar is more dangerous than the shutting down of this country’s ability to have energy.
“I wonder why they didnt suggest more drilling, nuke plants and transitioning to natural gas for trucks, buses, cars, etc.”
That would actually make sense.
Obama has no intention of helping prices fall. “We need to send price signals”
More GE-made windmills, (non-recyclable) solar panels and cap and tax.
2. Yes. Good idea. Would go even further and find way to end such speculating altogether
3. Yes. In fact, make it permanent
4. Yes. In fact, go further. Move to a limited number of nationwide formulations that remain the same year round.
5. Nope. May reduce gasoline costs but will cause price increases in other things. A stupid idea.
6. ...and this should be priority number 1...establish an energy policy in this country with one primary goal: plentiful, cheap energy. Drill, mine, build (as in nuclear power generating plants and refineries).
We don't use oil to any significance to generate electrical power. Most of what we do use is refinery leftovers like Petroleum Coke and Residual oil, the remains of crude after the high value products like gasoline and diesel have been removed.
It is a good idea, but it would have zero effect on the demand and future demand of oil.
Barry is gonna pick Option #2, stomp down on the Greedy Speculators. That works for him on so many levels...
I remember the 55 mph speed limit all too well. I was working for the State of SD at the time and the governor imposed the 55 mph limit for state vehicles long before it went national. South Dakota is a very large state and at 55 mph getting anywhere from the capitol in Pierre takes most of a day at 75 mph ...at 55 mph it added almost a half day to travel time.
No, you aren’t missing anything at all.
It might even save the dollar, as well.
But the Commie Left won’t hear of it.
The slow squeeze of Americans is proceeding according to plan, slow creeping socialism is already rampant in our society, a third of the people depend on the government, and the productive are being taxed and currency weakened to the point they will be lucky to stay afloat, in the next few years.
Isn’t public schools, social security, taxes and fiat reserve currency wonderful? /s
What would help is making oil buyers be the real thing, you buy it you pay for it and take delivery then you can resell it. Just like wal mart, it is called adding value.
Short term is just suck a really, really, really, hard concept to grasp, now let’s talk about what we can do for five years from now. Dang!!!!
You want lower gasoline prices>>>
I would limit oil futures speculation. The hedgies and Wall Street parasites like Goldman Sachs can take unlimited large positions. Ten years ago this was not allowed. Only producers (like Libya) and consumers (like an oil refinery) could take unlimited large futures positions.
GS and Wall Street has everyone (the right DC hacks) so paid off ..... so DC would rather see consumers get gouged and raped plus the Obama crowd like high oil prices to better pimp their green energy boondoggles
Take Wall Street and hedgers out of the oil futures game and petroleum will be $40 less.... about $65
I'd like to see electricity prices driven down very low.
Stop the ethanol program and put all research funds into the following:
Don't fund any production program until the research says it's ready and viable.
They don’t want the oil prices to fall. They WANT our BEHAVIOR to “improve” according to their “smart” plans.
I’ve never understood the logic of #5. how much would we all save if we went 20 mph? why does this have to be a law? what a stupid idea that was.
Lowering gas taxes means illegal aliens dont pay nuthin.
Drill baby drill.
You’re right, of course.
Enforce 55 MPH speed limit. Stick 55 n your ear. My car is geared for the Autobahn, so driving 55 is not efficient as driving 70.
Suspend state and Federal gas taxes. (Monkeys flying) That's hilarious.
Cut the gas tax (average 43 cents per gallon), release some of the Strategic Petroleum Reserve (we can replenish it later if need be), drill, baby drill — both offshore and on. Build more nuke plants and extract and use more natural gas.
And Bakken - andn the Rockies.
The strategic reserve is for strategic purposes; like war. Planes, tanks and ships don't run well on ethenol.
Just saying we will open Alaska —just the words themselves will put a chill in the hearts of the speculators and lead to some drop in place. HERE is My List:
1. FIX Libya with an invasion—and get rid of the mad man. Get other Islamic states to help—let Europeans take a lead— Maybe Turkey-Egypt too. Solve it quickly. THEN get out.
2. More Nuke Plants—newer and better nukes like the ones in Germany or south Africa. Build 75 new plants—If we are going to have electric cars we will need em.
3. Built new oil refineries—one new one for each state—build them on old military bases if we must.
4. Open all the coastline to drilling—and Alaska too. That and the National Parks too—
5. Get that oil shale conversion plants going—so we can make gas from shale/coal.
6. Dump environmental laws that hinder growth- BUT keep safety rules in place. No more little fishes or spotted owls putting American in the 19th Century.
And as soon as we find some we'll build refinery capacity within a stone's throw of the field to handle it without having to ship it all over hell's-half-acre. Refineries don't HAVE to be so big and complicated. Sure, it's complicated process, but no more so than making a good whiskey, and it doesn't even need the aging process.
Like so much of what America has done for the last 70 years or so energy has fallen prey to the bigger-is-better idea. We WILL figure out how to do without foreign energy when the chips are down. It would be much smoother and less stressful and expensive to do it NOW, while we have some cushion.
Diesel is the same way, CA is highest with an overall rate of 76 cents/gallon (taking out the fed rate of 24.4 cents/gallon, that leaves 51.6 cents/gallon as CA taxes (again per gallon excise tax and sales tax). Alaska has a total rate of 32.4 cents/gallon, again only 8 cents of which is Alaska's take once the 24.4 cents for the fed is removed.
The mix varies as to how the states tax fuel, but many only have an excise (per gallon) tax. Some add other taxes (sales tax, for example). As an actual cost of fuel, unless a sales tax is included, excise taxes as part of the fuel cost go down as prices rise. Take Idaho, for example, the fuel tax there is 25 cents a gallon for both gasoline and diesel, so at $1.00/gallon price the state excise tax is 25% of the total cost of the fuel. At $3.50/gallon, the tax dropts to 7.14% of the total cost.
The US average tax per gallon of gasoline in January of this year was 48.1 cents/gallon. Taking out the fed rate of 18.4 cents/gallon, then the average state tax per gallon of gasoline is 29.7 (again includes excise taxes and other taxes). For diesel, it's 53.1 cents/gallon. Taking out the fed rate of 24.4 cents, the average state rate is 28.7 cents (excise and other).
I strongly believe in developing multiple sources. I don’t want us to use up too much of our petroleum sources as in the far future, if we survive as a country, we will need them for all the other useful products derived from oil. Definitely develop non food commodity sources of ethanol and biodeisel. Get a really robust scheme of immediate action resources and supervision for Gulf and continental shelf drilling and accidents.
Regarding commodities, restrict LARGE positions to end users, like oil for airlines, grains for cereal companies. Allow small positions for traders. This would also help the rampant speculation in rice, wheat, soy, etc. that is going to cause more war dangers as people on $1 a day income go hungry.
Allow, make it easy, for small producers to feed the grid and produce biodiesel from waste oils. I watched a recent hearing in Washington, DC on TV regarding solar power. More than 500 people there have already put solar power on their roofs. A half a dozen small companies testified that they had grown from 2 to 15 or 20 people in the past 2 years serving this activity. There was a law that the local utility should incorporate their electricity production before going out of the area to look for renewables. The utility was ignoring this law and going as far as Michigan, NY, PA, and NJ to get renewable energy. Unless this was changed these small, growing businesses employing local people were going to have to lay off workers, or even fail. I believe that one aspect of the Tea Party movement is more “power” in the hands of the people.
Serious research into alternative energy sources would have more impact than any of those cockamamie ideas. That would depress oil prices, as movers and shakers in the market started hedging their bets that the stuff just wouldn’t be needed 10-20 years down the road.
You’re right, you’re right, you’re right.
I have some sympathy that random, very limited withdrawals from the reserve might work to break the cycle of rising oil prices (since speculation generally operates out of a pack psychology), but your fundamental point is unarguable - at some point the Straights of Hormuz are going to explode, and at that point whatever we’ve got in the strategic reserve is going to be too little.
Right on the button on every point.
It is a tragedy that we could have so much positive control over our energy costs (and hence our overall economic outlook), and instead we let the Sierra Club and the producers of “The China Syndrome” and the like, along with their enablers in the Democrat Party drive us to Third World status (while the Chinese and the oil sheikhs laugh at us while salting away our dollars).
Thank You for all of your pings. In looking at all the information, my realization is how uninformed I am. Thank you for the updates.
Thank You Proud Canadian, your views most reflect mine. Your ideas create jobs, and lowers some food prices by abolishing ethanol programs.
Canada and Mexico have more political will to extract the resource and sell it than the US does. Mexico is losing the political will to maintain and expand their energy sector. It is becoming a narco state, sustained by drug sales, not legitimate commodity production and sale.
The green faction in the US is trying to sap Canada's political will, or at least close the US market off to Canadian oilsands production and pipelines.