Plunge in Oil Prices Foretells Looming Economic Disaster. Aribrary pricing can go up easier than it came down.
December 8, 2014

 
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During the 2000 presidential campaign, after oil climbed a whopping 72cents in one day (yes, that’s sarcasm) to $33.05/barrel, causing gasoline prices to hit an “unthinkable” $1.68/gallon nationally, Interstate “long-haul” truckers across the country threatened to go on strike saying that the soaring price of fuel was putting them out of business. Naturally, the leading candidates, Bush & Gore, were both forced to respond. On June 22nd of that year, George W Bush openly criticized the Clinton Administration for rising gas prices, saying (famously) that if HE were president, he’d tell OPEC to “open up the spigots” to bring down gas [sic] prices. Over the prior two decades, the price of gasoline had not fluctuated by more than a few cents a year until the “dime a gallon” spikes we saw in early 2000. But that stability vanished following G.W.Bush’s ascent to the presidency:

DoE graph of weekly oil prices from 1991 to Present (link)
Weekly gas prices 1991 to present

The range circled in yellow is the relatively flat/stable gasoline prices we had become accustomed to for decades, with a slight dip following 9/11. Gas prices rarely rose more than a couple of pennies per gallon in a month let alone a single day. After becoming president, the price of gasoline under George W Bush remained in the “strike zone”… and by that, I mean quite literally the “over $1.50/gal” price point at which truckers had threatened to strike… for the next three years. The day AFTER 9/11… and for the next two years… oil was still (roughly) only $29/barrel. It took the unwarranted invasion of Iraq and tossing the Middle East into chaos to drive the price of oil into the stratosphere (I’ll let you decide if that was the goal all along.)

The range circled in red is the dramatic plunge in gasoline prices after peaking at just over $4.10/gallon in July of 2008 (reportedly, one journalist asked President Bush at the time what he thought about the price of gas breaking $4/gallon, to which a startled president Bush… who last saw gas prices around $1.68/gal during the 2000 campaign… supposedly said in surprise, “How much???”) Breaking the $4.00 barrier was probably the final straw in the looming collapse of the economy, the bankrupting of the banking industry and the implosion of Wall Street, with the price of gas falling to a national average of just $1.89/per gallon in just seven months. The election of President Obama and the promise of getting out of Iraq was seen as likely to bring some stability to the Middle East (don’t laugh), which in turn would reduce the threat to our oil supply, allowing prices to quickly “rebound” back to the “new normal” of over $2.50/gallon in less than a few months (and over $3.50/gal in the year to follow). Again, as you can see from the graph, gas prices began to flatten out (relatively) until this most recent plunge (circled in green.)

I’ve been writing about the skyrocketing price of oil under Bush for many years now, so one might think I’d be thrilled to death to see the price of oil (and gas) plunge back to Earth… and under a Democratic president no less to really rub it in Republican’s faces. Low gas prices are like a shot of nitrous in the economic gas tank. What Republicans think “tax cuts” do for the economy, falling gas prices actually DO (because the benefits hit the Poor & Middle-Class FAR more directly/substantially.) But sadly, this current plunge has only highlighted a big flashing neon-sign at just how arbitrary oil pricing was to begin with, and how likely this rubberband is poised to snap back in our faces. Not to sound like a “Debbie Downer”, but there is a reason oil prices have been falling so precipitously in recent months and the chance they could shoot back up at almost any time is very real (if not likely)… the consequences of which could get very ugly.

The reason oil prices are falling are manifold. First, the United States, under President Obama, has dramatically increased oil production to a 38 year high. The “Drill here! Drill now!” crowd that vilified Obama during the 2008 & 2012 presidential races has an unexpected ally in President Obama. While touting the need to cut our dependence on fossil fuel and invest in renewable energy, President Obama has disappointingly been very supportive of increased drilling across the country (mercifully, he stood up against the “Keystone XL pipeline”, but have you noticed since the vote failed in the Senate, Republicans aren’t exactly banging the drum on how they’ll hold another vote after they take control of Congress?)

Increased U.S. production has triggered a price-war with OPEC… which represents about 1/3 of all the oil produced in the world… increasing their own production to compete with America. So right now, it’s a fight to see “who blinks first”. Two weeks ago, OPEC voted on whether they should CUT production in an attempt to drive prices back up. In the end, they voted “No” because they knew they would lose Billions in sales as more people purchased American oil. OPEC’s response was that they could withstand the price of oil falling to as low as $50/barrel again… a price not seen since right after the invasion of Iraq in 2003.

But American oil companies are likely to blink first before allowing oil prices to fall that low again, and would cut their own production to drive prices back up. OPEC would happily cut their own production in turn, the price of oil would skyrocket overnight and the U.S. economy could crash.

And American oil companies have ample incentive to drive prices up. First, when you sell a product billions of people literally can’t do without, you can almost charge whatever you want. And if they want $75 oil again, they wouldn’t break a sweat getting it back up there. And if you’re “TransCanada” and have millions of acres of oily sludge just begging to be turned into a pile of cash if only it were cost-effective to do so (presently, oil needs to be over $75/barrel to make converting tarsands sludge into oil profitable), nothing would make them (or their investors) happier than to see the price of oil shoot back up.

Of course, U.S. oil production can’t remain at this pace forever. Eventually (very soon I believe), production is going to start falling off (either from actual shortages or artificial ones), thus prices will start inching back up and the U.S. economy will falter. Desperate to eschew blame, Republicans… having missed the lesson entirely… will cry, “If only Democrats hadn’t blocked the Keystone pipeline in 2014, it would be built by now (actually, most of it is already built) and the price of oil wouldn’t be so high!”

No, the lesson to be learned here is that now more than ever, while oil prices are low and the economy is growing, we need to be investing in Green Energy now more than ever. Think of it as a “rainy day fund”. You don’t put money in the fund when you’re struggling and need it most, you fill it when times are good and need it least. We shouldn’t allow our… nay The World’s economy to be subject to the whims of the Oil Cartels. They’ve already subjected us to ONE global economic disaster. Do we REALLY wanna try for TWO… especially with so much warning?

POSTSCRIPT: I decided not to report on the recent protests regarding the deaths of Eric Garner, Michael Brown, Tamir Rice, and whomever is next because the subject is already being covered thoroughly by others. Rush Limbaugh went on Fox “news” Sunday yesterday to blame “high taxes on cigarettes” for the death of Eric Garner (the “logic” being that the only reason there was a market for him to sell lose cigarettes was because of the high taxes on them, and the city’s dependence on that tax revenue is why “so many” cops descended upon him to the point of taking his life.) Yes Rush, blame the government; blame the victim; just don’t blame the guy with his arm around Garner’s neck… which “wasn’t a choke hold” because the cops told him so.

Limbaugh… the man who sang “Barack the Magic Negro” on his radio show to the same Teanut listeners who carried signs of Obama dressed like a witch doctor while protesting “ObamaCare”… complained bitterly that “people thought electing a black president would move the country past racism” (an irony lost on Limbaugh), but instead President Obama is to blame for an even greater racial divide in this country. He went on to lament that “you can’t criticize Obama without being accused of being a racist.” No Rush, before Obama, closet racists like yourself kept their racism in check. Once they were able to openly use racial code to criticize a black politician under the protective guise of simply “criticizing the president”, that’s when you and your ilk were exposed as the racists asshats we always knew you to be.

 


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December 8, 2014 · Admin Mugsy · No Comments - Add
Posted in: Economy, Energy Independence, Greed, Money, Predictions, Seems Obvious to Me