Why Is Oil So Expensive?

Many in Congress (mostly Democrats) would have us believe it is the oil companies and speculators driving up prices unreasonably. The truth is with China, India and other developing countries demanding more oil and gasoline world supplies are fast approaching the limit where demand is outstripping supply. When that happens, prices tend to move higher.

The supply problem in the United States stems partly from the federal government ham stringing new oil exploration. We would have sufficient oil supplies today if President Bill Clinton had not vetoed the Republican sponsored bill authorizing drilling in ANWR (Arctic National Wildlife Refuse) in the 1990’s. We would have sufficient oil supplies today if Congressional Democrats had not blocked a new bill to authorize drilling in Alaska in this decade. We would have sufficient oil supplies today if the same Democrats had not blocked drilling on our continental shelves and in some areas of the Gulf of Mexico. Eighty-five percent of the untapped U.S. oil reserves have been placed off-limits by legislative maneuvers by the Dems. All because of some overly exaggerated environmental fears.

Some oil analysts suspect that we have already passed or are very close to a point in time referred to as “Peak Oil”. Peak Oil refers to the day when existing oil output can no longer be sustained because there are insufficient world wide oil fields left to explore and existing wells are facing declining production. No one knows for sure when we will reach Peak Oil but analysts tell us the coming of that day is inevitable.

Another reason we in America are seeing oil prices increase is because of our weak dollar. Many pundents would have us believe that this is a major reason oil is skyrocketing. It is not. Since 2004 the dollar has fallen approximately 20% with respect to most major world currencies. Oil prices have risen from $35 a barrel in early 2004 to over $125 today. A 20% increase would only have taken us to $42 oil. The weak Dollar is only having a minimal effect on oil prices.

The bad news is that now there is little anyone can do to bring oil and gasoline prices down in the short term. The market forces will have to work this out and sadly the scenario will most likely go something like this: People will slowly decrease consumption as fuel and energy prices work their way into the system. However, prices will continue to climb until the pain is so great that demand falls precipitously. This can only be caused by a strong recession or worse. At that point oil prices will retreat to somewhere under $100 a barrel. But as the world comes out of recession, the whole process is going to start anew unless new massive world oil reserves are located and brought to market. A new large field discovered off the coast of Brazil may offer some hope for world oil supplies in the not to distant future. The U.S. can insulate herself somewhat from these cycles by releasing currently restricted areas to immediate exploration and drilling and allowing for oil shale development.

The only way out of this cycle in the medium term is for the U.S. government to promote drilling in ALL presently restricted areas of our country. Drilling in ANWR needs to start immediately! Unfortunately, the Democrat led Congress has just rebuffed a proposed bill to do just that. If you remember the stagflation of the 70’s, you haven’t seen anything yet!

In the long term we need new breakthroughs in alternative fuels. However, bio-fuels are not going to be part of the answer unless they can be made from bio-waste. Food crops are in short supply world wide and famine in large parts of the world is already becoming a reality.

There have been some strides in solar, wind, wave, hydrogen, fuel cell, battery, coal, nuclear and other fuel technologies. So far, none of them are providing us with a clear direction to solve our energy needs. More technological breakthroughs need to be forthcoming – and soon! Without them, our way of life is in real jeopardy in the years ahead.

UPDATE: The Senate Appropriations Committee refused on Friday to end its moratorium on oil shale development in Colorado. The proposal to end the moratorium went down to defeat with 14 Republican members in favor of ending the moratorium and 15 Democrats opposed.

Again, the Democrats got it wrong. The amount of oil locked in shale in the U.S. and Canada is estimated at more than 1 trillion barrels. More than enough to end our dependence on foreign oil.

Colorado Senior Senator, Republican Wayne Allard said, “If we are really serious about reducing pain at the pump, this is a vote that would make a difference in people’s lives.”

UPDATE 2: The Democrat contolled Congress won’t allow U.S. companies to explore for oil off the coast of Florida but just 60 miles from Key West, Florida Cuba with the help of China is exploring for oil. Can you believe how out of touch Congress has gotten? Isn’t it time we return control of Congress to the more responsible Republicans?

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