3 Steps Could Lower Oil Prices, but Nobody'll Take Them

SOURCE

I think this issue will be top priority for voters come Nov. I think it will even dwarf Iraq in what voters view as the number one priority.

-Cthulhu

So, the steps are:

1. Curb financial speculation.

2. Tap into the strategic reserve

3. Fiddle with the interest rates to make the dollar stronger.

I'm not altogether sure why these won't work, other than Bush won't do shit to knock down oil prices.

The US cannot curb "speculation" on oil commodities. They can try to impose controls over the New York exchange, but they cannot press their will in London or Dubai. Besides, while this kind of speculation can lead to profits for investors on barrel prices, it does not have much impact on the end price of gasoline. Remember, for every long position, someone has likely taken a short position.

The strategic reserve may have lived out its usefulness. I mean, it was designed in case of disaster or an abrupt change in supply; in which case those reserves will go directly to military and governmental use. It's unlikely that any meaningful amount will reach consumers.

Nero Claudius Caesar Augustus Germanicus Bernanke is already fiddling with interest rates. Which direction should he move the joystick?

Maybe this post is better suited for livjurnl

Limiting US-based oil futures speculation is not going to limit world speculation. Traders will move to the markets outside the US as needed - a very temporary, very limited fix at best. Same with requiring stiffer trading margin limits.

Releasing oil out of the SPR will also have a limited effect. Oil supply isn't the problem, it's finished product inventory and demand for those finished products worldwide. Another very temporary, very limited "fix"... and all that oil will need to be replaced eventually.

Strengthening the dollar would help somewhat, but it's unclear how much this lame-duck administration could or would do in the short time it remains in office.

Adroitbeing beat me to it.

Um, why did 1/2 the posts in here just disappear?

They got Beaned for off-topic bitchery.

Wow, slow news day, eh?

Actually it was very busy . . . just not about news.

As the article hints without elaborating, producing more oil won't really do much without additional refinery capacity.

All three solutions are bandaids, at best. We've had 30 years to get off our dependence on oil, and we have done almost nothing in that direction.

Even if we were to open up offshore drilling *shudder* it won't change the fact that the total amount of petroleum is finite. The longer we delay the development of alternative energy, and the longer we enable the use of gas-guzzlers, the worse it will get.

I agree
The problem is the refining bottleneck. There are not enough refineries producing gasoline. There also isn't enough margin in gasoline to warrent building new refineries without government subsidies. Our solution is to run a heavier crude, we make more asphalt, but beat the hell out of the plant to keep production up. Meaning more maintence expence and more shutdowns further dropping our margins. If the margins were there we would pull our other refinery out of mothball and start running it.

To strengthen the dollar would require raising interest rates, this would raise the cost of our exports overseas and tighten the credit market further. Higher mortgage rates would also drop home values because of tighting credit. This would return us to the "stag-flation conditions of the 70s, where mortgage interest rates went as high as 24%.

The current solution I believe in is develop nuclear power and clean coal technology, and contine to develop electric cars. Ethanol based fuels arn't the answer, even though they are a great stimulant to rural economies, the impact on world food prices would be detrimental.

While new refineries haven't been built here in a long time, existing refineries have been updated and enlarged steadily in that same time frame. Refining margins go up and down and differing state fuel standards make it harder for one refinery to compensate for spot shortages in other parts of the country, while making it risky to spend all that money and time to erect new refineries that may not pay back the investment fast enough if prices do drop.

The US tends to refine lighter crude because of our low-sulfur diesel standards and domestic cracking methods that produce more gasoline. This leaves cheaper dirtier heavier grades of oil to China, Russia, Mexico, etc that have looser standards and state-to-consumer subsidies to keep retail prices down.

That sounds familiar.

Off topic bitchery.

This comment was edited to remove vile sounding rant. Sentiment remains.

I'm inclined to think the Fed raising rates at this point would be disastrous. In that case, Bernanke would be doing exactly what he has built his entire career since school arguing was the fed's worst mistke ever.

Can't we increase refinery production? Or is that just another myth?

Yes, and it would be helpful although it would not be a short term fix.

I've heard conservatives claim that new refineries aren't being built because of environmental restrictions.

But Public Citizen blames the oil companies. The truth is probably somewhere in the middle.

That would only be a solution if there was more crude being supplied than the refineries could handle. Since the supply really isn't being upped by OPEC, having more refineries really wouldn't do much.

I'm wondering if perhaps the oil company executives and boards are stymied, sort of frozen and unable to know what to do next.

- Their savior US president is about to depart, ending 8 years of getting away with pretty much whatever they want

- After enjoying years of quiet profit taking, suddenly these companies are in every blog and news report and the public scrutinizes every move they make

- They have enjoyed so much profitability, without being required to reinvest at historical levels, they find themselves behind the curve in both exploration on approved lands and capital investments in infrastructure like refineries.

- So, they go to a board meeting and someone shouts - "we need to build another refinery!" and someone else shouts "hell no! If we build another refinery the population will crucify us, we must spend more on advertising to make it look like we care about our over-dependence on oil!" and still someone else shouts "you must be kidding; the American public will see right through those transparent measures; we have to buy up some of those multi-crystalline silicon solar panel manufacturers!"

Then someone says it time to break for lunch, just before asking,"what's the current quote on WTI (West Texas Intermediate Crude)?