Oil Closed at $129 a Barrel Tuesday – Why that’s significant.

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- Mugsy

A grime milestone was reached as the price for a barrel of oil closed above $129 a barrel for the first time, Tuesday.

The significance of that number may be lost on most, but it is significant and here’s why:

On September 12, 2001, crude oil closed at $29 a barrel… the day after the attacks of 9/11. While the U.S. Stock & Mercantile markets may have been closed in the U.S., the rest of the world went on without us. The price of oil rose only slightly, up just $1.55 from the day before. Oil has now risen an additional $100 a barrel since 9/11.

If you were a Republican, you might stop there and exonerate President Bush by blaming current oil prices on “9/11″. But exactly 18 months later on March 11, 2003, the price of oil had climbed a mere $9 to just $37 a barrel a little over a week before the invasion of Iraq. 9/11 had NOTHING to do with the meteoric rise in gas prices that we see today.

As I noted just last month, when Texas Governor George W. Bush was still running for President in 2000, the price of gasoline hit a high of $1.49/gallon. Truckers threatened to go on strike over the high price of diesel fuel, and a petulant candidate Bush was telling everyone that if he were President, he’d tell OPEC to “open up the spigot” and increase the supply of oil to bring down high gas prices.

Last week, Bushie tried just that, traveling to Saudi Arabia to beg his Arab masters that they take pity on him and pump more oil to bring down the price of fuel… a record price that’s making them filthy rich. Their response was just as you would have expected:

Playing Taps
(click for full-sized image)

I’ve referenced this video of mine numerous times here on Mugsy’s Rap Sheet, where a Yale Professor of Economics just prior to the invasion of Iraq envisioned a “worst case scenario” of oil hitting $75 a barrel and gasoline topping a whopping $3 a gallon if the invasion of Iraq didn’t go well. Back then, $75 was such an unimaginably high price for oil. Consider that, even at the height of the 1991 Gulf War, the price of oil peaked at just $41 a barrel, then quickly settled back down to its “pre-invasion” price as the war ended quickly with the ouster of Saddam Hussein from neighboring Kuwait and U.S. troops were brought home.

BBC oil graph
(Click image for full story behind graph)

A Conservative, yet Bush-hating, friend of mine emailed me last week to say that, as much as he despised Bush, he didn’t blame him for the high gas prices, believing that the cause was mostly out of his control. I quickly knocked that down with a few points. “The current high price of fuel is ENTIRELY Bush’s fault, and here’s why:”

There are a number of things Bush can do to PERMANENTLY drop the price of oil/fuel. I say “PERMANENTLY”, because pathetic quick fixes like “halting the flow of oil into the U.S. strategic reserve“, like President Bush did this past week, not knowing what else to do after the Saudi’s turned him down flat, are not long-term solutions.

First off, stop devaluing the dollar by printing billions of worthless greenbacks to pay interest on the exploding National Debt being run up by his indefensible tax cuts for the wealthiest 2% of Americans while funding his war in Iraq. As the dollar grows worthless, it takes more of them to purchase a barrel of oil… which (for now) is traded in U.S. dollars. The skyrocketing price of oil, while hurting the rest of the world’s economy, isn’t causing anywhere near as much pain in Europe, where both the price of oil AND the value of the Euro have risen against the U.S. dollar. In 1999, the new “Euro” was worth $0.98 to the U.S. dollar. Today, it is worth $1.59.. So while it takes $129 to purchase one barrel of crude oil, it costs the EEC $82.50. For comparison sake, while the price of oil has risen $92 a barrel (from $37 to $129) since the invasion of Iraq, it has risen only $45 for most of Europe. Still high, but not even in the same ballpark as the U.S. (In case you’re wondering, the British Pound is currently worth $1.97, so in England, a barrel of oil is still affordable at the equivalent of $65.50/barrel).

Second, like just about everyone else, you probably noticed the price of gasoline fell dramatically just before the 2006 mid-term elections. Locally, the weekend before Election Day, the price of Regular Unleaded had fallen to just $1.99 a gallon (down from $2.25 earlier that Summer). Amazing how that happens, gas prices falling just in time for the big election, then going back up right after. While the oil companies (and the Bush Administration) like to blame “the lack of refineries” for much of the high cost of gasoline, it’s a total sham that I like to call “the Enron Effect“… closing refineries and cutting production to artificially raise prices. In 1999, the Texas-based energy company Enron was ordering electric plants in California to “close for maintenance”, causing artificial shortages of electricity that forced the state of California to impose “rolling blackouts”, and raised electricity prices through the roof. You may remember stories of Enron CEO Jeffrey Skilling joking in a live webcast to employees, “You know what the difference is between California and the Titanic? At least when the Titanic went down, the lights were on.

And now oil companies use the same tactic to artificially push up gas prices, closing refineries or running refineries at less than peak capacity to create artificial shortages, then racking in the profits as the price soars higher. And we KNOW this is so because, as the 2006 “anomaly” proved, they clearly can glut the market, increase supply and bring down prices when they want to, to try and influence an election. If President Bush REALLY wanted to cut gasoline prices, he’d slap a hefty Billion dollar fine on any oil company caught unnecessarily closing a refinery or running at diminished capacity (no metaphor intended).

$75/barrel oil and $3 gas was almost unthinkable in 2003. That was $54/barrel ago.

$4 gas in Florida
($4 a gallon gas in Florida)

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