UNNECESSARY OIL PANIC

This chart shows that, although developing countries (non-OECD) have a notably higher consumption rate for oil than the developed countries (OECD), worldwide consumption peaked in 2004 and has been on the decline ever since.

That would seem to indicate that the economic law of supply and demand, in and of itself, is not the driving force behind skyrocketing oil prices even when considering that developing countries continue to have a high consumption rate. So although supply and demand continue to be a factor, what else is causing this historic escalation?

Most certainly commodity futures speculation is a major force in the equation. The supply and demand forces in the futures markets is causing prices to rise. But is this factor a bubble? It might prove to be so and if it is, the sooner it bursts the better for us all.

Another big player in this matter is the devalued dollar. As the American dollar has decreased in value versus most all international currencies the impact on oil prices has been palpable since those prices are set in dollars. Federal government action to increase the value of the dollar would also prove helpful to the reduction of oil prices.

Needless to say increasing the supply of domestically produced oil from resources now off limits due to environmental legislation would reduce the pressure on the commodity markets. So would increasing our domestic refining capacity with the construction of more refineries. Although both would take a little time, the immediate message to the markets would be clear and would tend to relieve some of the existing upward pressure on prices. Since this would be a smart move, do not expect our politicians to do anything like this in the near term.

The other valuable message that we could send to the international marketplace is that as a matter of national policy we are going to move ourselves away from a primary dependency on fossil fuels for our motor vehicles. That kind of official national resolve would directly impact the futures markets.

This is all common sense. Thus our Congress, one of the most unpopular in history, will spend their time passing legislation to sue OPEC and argue about windfall profits taxes on oil companies. Neither of those ideas are at all helpful and are in fact counterproductive.

Our politicians are a collection of partisan hacks interested only in their own well being and ignoring the greater good.

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