So, President Obama has decided to open up areas of the eastern Continental Shelf and a small section of the Gulf of Mexico to oil/gas exploration.

This is very good news. The President says it is designed to “reduce our dependence on foreign oil,” and also to “produce jobs.” He further added that it would be unwise to “ignore reality”–one presumes he means the reality that we still need oil in the short term, even though we want to switch to some other energy later on.

This is good news and we can all applaud his decision.

The bad news is he’s doing it not because of the obvious need for oil-based energy, but to try to “bribe’ Republicans into supporting his cap-and-trade legislation.

That’s bad. Cap-and-trade is a loser, no matter how you look at things. Besides raising energy costs, it operates on the mistaken assumption that energy consumption in the U.S. is far more price-elastic than it actually is. Raising the cost of energy production by putting onerous emissions standards on power companies that they will then be forced to pass along to their customers will not curb consumption to any major degree.

The vast majority of our energy use is not discretionary. We drive to work as we must. We heat our homes as we must. We operate our machinery as we must. The amount of that that can be reduced or eliminated is limited, regardless of the price.

Drastically higher energy costs will simply rob the country of economic activity as people pay for their lights instead of buying new clothes or going on vacation. As companies’ costs go up they will reduce their workforces. And so on. You know the drill.

Also, the world’s energy/commodity market knows this and knows why Obama is opening up drilling. If he were serious about increasing our oil self-sufficiency, the world oil market would respond like it did in summer 2008, when the expanded oil exploration plans were first unveiled: crude plummeted to $35/bbl, and gasoline dropped to well under $1.70/gal.

The oil market–like all commodity markets–operates as much on buyer sentiment and expectation as it does on actual supply and demand. The world’s supply didn’t change in the fall of 2008, but the market’s sentiment did–it expected a serious U.S. effort at expanding its domestic oil supply. So world pricing dropped accordingly.

As President Obama has made clear he wouldn’t follow through on that and rescinded those exploration leases last year, the market’s sentiment changed again, this time in the other direction–up. Now we’re paying close to $3.00/gal.

It’s highly doubtful that the world’s oil market will see this latest move as anything other than what is it: a disingenuous political feint, designed more to further his domestic political agenda than serve the country’s energy or economic needs.

The proof will be at the pump–if the summer rise in gasoline doesn’t take place, we’ll know that the world’s oil market is pre-emptively keeping pricing low in advance of the expectation of increased U.S. oil production.

If gasoline rises in the coming months, we’ll know that the oil market has disregarded Obama’s move as being merely a shallow gesture.

We’ll see, won’t we?

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