Fuelishness! -- The FuelClinic.com Blog

The Option to Drill

July 26, 2008 · · Filed Under Fuels, Oil Industry, Oil Refining 

Is the Option to Drill enough to stop sky-rocketing gas prices? 

(For the record, politics stink. Oil is now a hugely political issue, and I try very hard to avoid “politics” on this blog and website. It’s truely meant to be a resource for everyone, without a personal political axe to grind. Sometimes politics are unavoidable. When the facts speak one way or another, and it coincides with a certain political bent, I’ll do my very best to indicate why you should at least consider the points being made by “the other team”.) 

Some say we “can’t drill our way out of high oil prices” and that “it will take 10 years to see a result” of renewed off-shore drilling here in the United States. Apparently, however, our government can do a little paperwork and revoke drilling moratorium restrictions – creating an “Option of Drilling” – and immediately see a “correction” to the price of oil – without any actual drilling.

  1. Since George Bush rescinded the federal moratorium on off-shore drilling and since demand for higher domestic production has increased in the face of $5 per gallon gasoline, the price of crude has dropped over $20 a barrel in less than two weeks. 
  2. The correction for oil prices has lasted two weeks with Brent down 16.3 per cent since hitting a record $147.50 on July 11 while WTI has sunk 16.8 per cent since reaching an all-time high of $147.27 on the same day.
  3. Technically, the $128/bbl support on WTI did not hold very long, and crude is pushed down further to test how strong the $122/bbl support can be. If $122/bbl does not hold, then we would face another accelerating wave to the next significant support level at $110/bbl.

There is another ban on off-shore drilling – a Congressional ban. Lifting this ban would indicate a strong intention and commitment to the “Option to Drill” – and help continue the “correction” of oil prices. To lift the ban requires a vote. But, Congress being the mess that it is, there are people who’d just rather not vote one way or another on this right now…

  1. WHY NOT have a vote on offshore drilling? There’s a serious debate to be had over whether Congress should lift the ban on drilling in the Outer Continental Shelf that has been in place since 1981.

The “correction” has certainly had some help form the current high prices. “Pain at the pump” has changed the habits of many drivers. Demand has reduced 2.4% from this time last year. Many people are driving less. It’s not hard to imagine why, when the cost of a fuel stop can easily approach $100 for a full sized pickup or SUV.

  1. “People have changed their driving habits, and they’re not going to change back anytime soon,” said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group.
  2. Gasoline price changes typically lag behind oil prices. The price of oil has risen more than 72% over the last 12 months. But as the high cost of fuel cut into demand, crude prices have shed more than $23 a barrel since hitting a record high on July 11.  

Without options, America’s economy can be held hostage by the greed of others. FuelClinic is obviously a stong proponet of consumer education, fuel conservation, new fuel technologies, electric cars, and other alternatives to help wean human civilization from the giant oil tit. At the same time, we do not need to needlessly (or stubbornly) slow the world economy by refusing to recognize the power of markets to correct themselves when artificial constraints are removed.


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