Oil at more than $100 per barrel is far too expensive. Despite President Barack Obama’s recent protestations that oil speculators are to blame for expensive petroleum, the truth is that most of the blame rests on his shoulders.
There is plenty of oil in North America. Yet Obama and his Green lobby are happy to see gasoline prices go even higher just as we hit the busy summer driving season. The reason is that higher petroleum prices back up Obama’s argument that renewable energy is urgently needed.
President Franklin Delano Roosevelt made the famous pronouncement that “the only thing we have to fear is fear itself.”
Nearly 80 years later, a Democratic President is not playing down public fears but actually fanning them. If you don’t believe me, consider the facts about North America’s vast petroleum reserves and surging production.
Canadian oil production rose to 1.6 million barrels per day (mb/d) last year. That was an increase of more than 13 percent from the year before. According to the Canadian Energy Research Institute, Alberta and Saskatchewan oil sands production will more than double to 4 mb/d in the next seven years and will reach 6.2 mb/d by 2045.
Add that in with the expected increase in both U.S. and Mexican oil production, and North America will be producing 11 mb/d by the end of this decade. That is about the same amount of oil that Saudi Arabia can produce if it opens its spigots all the way.
The 11 mb/d of oil production is a conservative estimate. Mitt Romney promises that if he is elected, he will vastly open up offshore drilling. If ever fully tapped, North America has the potential reserves to produce 14 mb/d of oil by 2020.
“North America is becoming the new Middle East,” recently wrote Ed Morse, the managing director and head of global commodities research at Citigroup.
Of course, much of North America’s energy independence will depend on who is in the Oval Office. If it is someone like Romney, who believes in free markets, I believe gasoline will be affordable again within a couple of years.
However, if Obama is re-elected and he continues to object to the import of Canada’s oil sands as well as expanded drilling within U.S. borders, petroleum prices might hit new records by the end of 2013. That will be more bad news for a shaky U.S. economy and will only further weaken America and the greenback.
After all, shortages and panics happen all the time. They certainly don’t require a U.S. President to get them going.
My First Lesson In Fear Economics
In the autumn of 1972, Alberta’s bitter cold was settling in. The engine to my mother’s Mercury was idling hard when the gasoline pump clunked to a halt. I pulled the nozzle out of the tank and pushed it back into its cradle.
I fished $10 from my wallet, enough to buy the gas and still have change left over for a coffee.
After paying, I headed for the door. Before I reached it, I was called back.
The manager asked: “Do you know about the antifreeze shortage?”
“What antifreeze shortage?”
“The one that’s coming this fall,” said the manager. “I haven’t gotten half the orders I was promised. My supplier told me the province is running out of antifreeze.”
I thought I better buy antifreeze. I dipped into my wallet and found some cash I was saving for the weekend. I gathered up what was left.
Whether it was real or manufactured, I don’t know; but by the end of 1972, there was an antifreeze shortage. In December that year, you couldn’t find a gallon of antifreeze. For farmers caught in the middle of a cold Canadian winter, much depended upon it.
Years afterward, people in Alberta were still tripping over gallons of old antifreeze they had bought in 1972.
What happened to antifreeze happened to oil just a few months later. But in the case of oil, hoarding occurred on a worldwide scale, and the stakes were far bigger.
By late 1972, OPEC was sick of trading its petroleum for devaluing dollars. The seeds were planted for the first Arab Oil Embargo. For traders, just the idea that oil would be withheld from the market sent prices soaring.
From October to December 1973, the price of crude oil rose from $5.40 to $17. That was only the beginning of a frenzy that would send the price of crude above $70 per barrel in today’s money.
The climax to the oil crisis came in 1979 in the wake of the Iranian Revolution. Oil companies bought more than what they needed — not just because of the price (which they thought was headed higher), but because they were unsure they would get any oil later on.
Hoarding wasn’t limited to just oil companies. Everyone was intent on building oil inventories, even everyday motorists.
In his book The Prize, Daniel Yergin writes that before the 1979 oil crisis, American motorists drove around with, on average, their gas tanks one-quarter full. Following the Iranian Revolution, those gas tanks were, on average, three-quarters full. That changeover in itself sucked 1 billion gallons of motor fuel out of gasoline station tanks.
As a result of the Iranian Revolution, Western oil supplies were cut by 2 mb/d. Not only was the reaction to the oil embargo (3 mb/d of hoarding) worse, but it was the deciding factor in pushing oil prices above $35 a barrel and throwing the West into a recession.
My point is that you have to beware of textbook arguments by economists who don’t account for human emotions. Just because we’re not running out of oil doesn’t mean that oil prices can’t go higher, perhaps much higher. In the end, prices for everything from tulip bulbs to antifreeze and even petroleum depend much more on mass perception than the reality of supply and demand.
The Phony Oil Crisis
There doesn’t need to be an oil crisis on North America’s horizon. All we need is a straightforward U.S. President who believes in the free markets. We don’t need the leader we have now — an anti-oil President who insists on Green energy regardless of the social and economic costs.
On Townhall.com last month, columnist Paul Driessen summed up Obama’s broker energy policy:
Yet another “renewable” argument is that petroleum “keeps us trapped in the past.” In truth, we need to worry about the present, especially our depressing unemployment and unsustainable debt. Oil and gas provide 60% of America’s energy. By contrast, despite untold billions in subsidies, wind and solar combined still provide barely 0.60% – and are unlikely to do much better for decades to come.
Yours in good times and bad,
Editor, Myers’ Energy & Gold Report