I knew I would be popular for saying this...
The current price is due more to market fears than reality wrt supply/demand. In March 03, the price was $35/bbl, and that was an $8 jump in only 2 months, due to the strike in Venezuela and fears of the US going to war in Iraq. OPEC's target price was $28.
A correction-Bush Sr. only released 4 million barrels in 1991. The effect on the market was a
$10 drop overnite. The 4 million barrels made no impact on supply- it stabliized the market because it sent a message that the US would act if things got out of hand. It took away the
fear.
In 2003, when the price hit $38, the dems started calling for a release from the SPR. I was against it at the time, but last year when it hit $48, I changed my tune.
Yes, demand has grown in the last decade, but the supply has kept up, and is keeping up now. There is no shortage, there is a
fear of a shortage. Increased demand just can't account for the doubling in price in the last 2 1/2 years.
Look what has been happening with the market- a hurricane in the Gulf of Mexico- the price jumps a dollar. King Fahd dies- the price jumps a dollar. A pipeline in Iraq is targeted by terrorists- the price jumps two dollars. The standoff in Najaf last year caused a
3 dollar jump. This from a country that was only exporting 500,000 barrels a day! None of these things actually affects supply- it is the fear in the market future that is causing the instability.
The SPR is a strategic reserve, I undersand that. But it is also 700 million barrels of oil, and it
could have been used to stabilize the market before things got out of control. I think now it's too late.
The US uses 20 million barrels a day. The difference between $40 oil and $60 dollar oil is $150 Billion a year. That would
pay for the war in Iraq and Afghanistan all by itself. Think what the economic numbers would be like if we weren't spending an additional $150 Billion a year right now.
I am not advocating a drawdown of the SPR, but a couple minor symbolic releases, strategically timed, would have prevented the runaway oil prices.
I don't buy the argument about artificially controlling prices. They are
already artificially controlled. That's like saying DeBeers doesn't control the price of diamonds.
Like I said, it's to late now. Oil will never go back to 2003 prices. I doubt if it will ever drop below $50 again. It's a huge windfall for producers, and there is just no incentive for them to let it go back down. I think it is the biggest economic f*ckup of the Bush administration.
JMHO