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Markets Speak: “Drill, Drill, Drill” Philosophy Validated (Duh…)

March 15th, 2009 · 1 Comment · Uncategorized

There are lots of legitimate and persuasive (mostly environmentally focused) arguments against “drill, drill, drill” but you have to really stretch to make a economic argument that isn’t non-sensical.

I learned an interesting concept when I got my degree in Economics. Increasing the supply (and suppliers) of a good can drive down prices, and make markets far less prone to cartels or speculative influences. (When was the last time you saw a “bread bubble”?)

(That being said, I am certain some kind of obscure research combined with regression analysis can refute what all my professors, textbooks, and common sense assert…)

In 2008 when high demand and rampant speculation (largely surrounding an imminent military attack on Iran) triggered a oil price spike, previously non-economically viable dormant wells in Texas, Oklahoma, etc. came on line quickly. Production from the hugely expensive tar sands in Canada kicked into high gear. Oil output worldwide increased.

Even a measly 1.1 percent increase in output enabled a price collapse to around $40.00 a barrel. A deep worldwide recession didn’t hurt either.

The problem is that even with demand down, the price has stabilized at what is still double the historical average, and four times what it was as recently as 1998 ($11.64 a barrel.) We are still susceptible to huge, debilitating price surges based on hypothetical interruptions half a world away.

Just opening up ANWR would bump daily production of oil by an amount equal to almost three percent of OPEC’s output. Gee… Ya think that might greatly enhance the resiliency of the market and reduce prices, or is that just know-nothing Jingoism?

My friend Steve essentially argues since the baby aspirin he found in between the cushions of his couch helped bring his fever down, you should flush your big bottle of Ibuprofen in the medicine cabinet because it’s ineffective. He should instead argue that evidence suggests Ibuprofen is addictive and bad for your kidneys.

Peak oil and global warming concerns are semi-reasonable foundations for smart anti-drilling arguments. “Low-ish prices happen anyway” are not…


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