Sunday, July 20, 2008

Be Careful What You Wish For 
We've all been wanting oil prices to come down. Well, not libtards, apparently, but reasonable, responsible, mature thinkers would like to see oil prices come down.

You see, in an engine, oil is a lubricant, that helps an engine run smoothly, without overheating and scraping metal shavings off of the engine parts as they move together.

But in an economy, oil is a friction, not a lubricant. Energy prices above zero represent a drag on the economy. Only oilmen sell oil for its own sake. For everyone else, oil, and its derivatives, represents overhead, not revenue.

Well, oil prices have just undergone their biggest weekly drop ever.


No major new sources of energy - either in oil nor in some replacement technology - have come on board. And there has been no sudden sea change in the willingness of the libtards in Congress to allow these new sources of energy to come on line.

Even if they did, the long time lag between Congress's willingness to take the responsible course of action and the time the new energy could actually reach the market would mean that the net present value - the value of a future kilowatt's worth of oil or some form of energy that can replace a kw worth of oil someday, discounted by a reasonable interest rate back to today, of that new energy, as set by marketmakers, is quite small.

No, if energy is falling all of a sudden, that's not because of the expectation of good news on the supply side. It's because of the expectation of bad news on the demand side.

Oil prices are falling because economies are slowing down, and as a result, are not locking in future prices on nearly as much oil.

That said, I'll wager that 90% of the dumbasses that blame "speculators" for high oil prices don't even know what a speculator is in this market, or what they do.

Splash, out


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This seems a bit "post hoc ergo propter hoc" but didn't the current oil price dip begin almost immediately following the President's announcement he is lifting the executive ban on offshore oil drilling? If nothing else, that was at least a weak signal demand for foreign crude might drop in the not-too-distant future. What are your thoughts?
"But in an economy, oil is a friction, not a lubricant. Energy prices above zero represent a drag on the economy. Only oilmen sell oil for its own sake."

I don't think that this is true. Oil is a resource, a scarce resource, and no different than water, wood, or coal. If a resource has no use then it has no value and the price will be zero. If a resource has utility then it will have value and a non-zero price which is subject to supply and demand.

Overhead, friction if you will, is someone like me. I sit in my cubicle and figure out ways to transform the resources we buy--some derived from oil, some not--into something we can sell for more money, hopefully a lot more, than the cost of the materials and our labor. Without the resource inputs, there would be nothing for me to do.

There is a reason why we account for material as an expense and my labor as overhead.
From my perspective (as a consumer of petroleum products), it makes no difference whether someone sitting in a cubicle at Exxon Mobile or British Petroleum or anwhere else is expensed as overhead or as labor. The two cost centered are not line-itemed at the pump.

It's all friction. A cost of doing business.

Now, if I owned an oil pipeline, and charged a fraction of a penny for every gallon that passed through the pipe, then that oil represents revenue for me. But I would still regard the rising cost of moving a truck from point A to point B as a friction, regardless of the cost, as long as it was above zero.

This is not to say that oil, or any other commodity, isn't needed or isn't valuable. But to the extent it has a cost above zero, that cost is a friction.

Its benefits must outweigh its cost. If it doesn't, then I must either A.) find a replacement, or B.) Shut down my trucking firm.
I have been commenting to a number of friends that the price of crude has no reason to go down until the US shows some actual credible willingness to increase its own domestic production of energy ... if the US stops buying as much on the world markets, then to whom do the oil producers sell their oil ?

If the US finds non-oil methods of producing energy, India and China will follow suit ...

Bush's effort, while a good start is just, as Mike said, a weak signal ... if Congress would get off their collective thumbs and pass some legislation enabling more energy production, the price of crude would go down even more ... sadly, it seems that all the Congressional leadership is interested in pursuing is the activities in the current McCarthy committtees like Waxman's ...

It shoudl be highly embarrassing to each and every US citizen how France can handle the science to get 80%+ of its electricity needs from nuclear power, yet the US gets less than 25% of its electricity needs from nuclear ...
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