Drilling vs. Regulation

The debate over whether to lift the moratorium on offshore drilling is more about how we view regulation and markets than about pump-price. We have come to hate government with such rage that we're tripping over ourselves as the wool drops lower over our eyes.

The Bush administration is charging that the moratorium is the cause of spiking prices, when in fact there isn't even a loose correlation. For example, Florida's shelf holds natural gas, not sweet crude, and then only about a six month supply. Drilling there won't make a dent. You can make a similar case for each hotspot: California, Alaska, etc. Furthermore, when the moratorium was put into effect by Bush Senior, gas prices actually declined and stayed low for a decade afterwards. The rules and the price are unrelated.

Of course, today's high price is the result of growing demand from new customers in China and India. Consider that oil prices began to climb from their late '90's low at about the same time that China became a net-net importer (~2001). SUV's didn't help much either.

However, the visible demand curve has also attracted speculation, and that has exaggerated the recent sharp run-up. Of course, any smart futures buyer would have to have been in oil in the last 8 years (in a big way). It is their right to do so in a free commodities market. (Says one report: "As the dollar declines, commodities — including oil — attract investors. [It is] both a hedge against a weakening dollar and an investment vehicle that could yield substantial profit.") But in an election year, McCain has smugly suggested that we ought to tie the hands of these folks with some new rules.

My liberal friends are in turn asking "Why is a rule to protect the environment a bad one, and a rule to restrict a smart investment a good one?" In theory, conservatives should be thrilled that investors are free to run up prices.

... Say "Baaahh", 'cuz here comes the wool....

In fact they are: all energy prices have reached levels where producers can make a buck even on the most expensive and risky sources, including volatile Nigeria, and better yet, blissful Pensacola. So while McCain and Bush are telling us to be mad at government for making it hard to be energy-independent, what they are doing is easing the way for the energy companies to take a bit more, addiction-cure be damned.