Ok, so we’re releasing some oil from the SPR to calm the markets and “drive out speculators.” (By the way, there is no such thing as “speculators.” There are simply commodities brokers who buy and sell the world’s commodities–of which oil is only one–on the world’s market. The news media like to call them “speculators,” because it has an evil, underhanded connotation. The same commodities brokers buy and sell copper, gold, soybeans and pork bellies. When was the last time you heard the phrase “Evil soybean speculators”?)

This SPR release action affects 1 and 4 of the four main factors that determine world oil pricing (1. Supply and demand 2. Exploration activity 3. Refining capacity/Distribution efficiency 4. The so-called “Terror Premium.”)

But this will be only temporary, because the increased supply from the SPR can’t be sustained. However, the knowledge by the market that more supply is coming–that one simple fact–affects 1 and 4, and therefore affects pricing.

If the US were to seriously explore for new reserves or seriously undertake the extraction of oil from our oil shale deposits, that simple knowledge by the market would drop prices. But it would drop them permanently, not temporarily, because a major find means new sustainable supply, while a release from the SPR is short-lived.

You’re all business people, right?

You’re running a biz. You have most of the market to yourself. Your customers pretty much have to come to you or one of your 6 or 8 or 10 big “competitors.” Only they’re not really competitors, because you all get together and decide how much you’re going to produce and supply to the market.

Then, from out of the blue, a new, real competitor comes on the scene, promising to steal away your customers and treat them real nice. Thing is, they won’t be able to supply your customers for a few years. But they definitely will have the product, and you know they’re going to try to elbow in on your turf.

Ok, Mr/Mrs Pro Business Person–what do you do to ward off the coming competition? Take your customers for granted, gouge them with ridiculously high prices, treat them like cr*p, so that when a better alternative comes along for them, they desert you at the first opportunity?

Or do you re-double your current efforts to treat them well, price your wares fairly, be a reliable and consistent business partner who your current customers will want to stay with regardless of what happens?

This is pure business common sense. The existing suppliers in this scenario will treat their customers well because of their (the suppliers’) self-interests.

Everything is predicated on a new competitor entering the market and the knowledge–today–that this new competitor will have (at some point in the not-too-distant future) a significant quantity of product that competes directly with today’s big suppliers.

This is Business 101. That’s why it’s important to explore for more oil now–not just for the actual supply it will yield 5 or 7 years from now, but for the message and impact that a new find will have on the market today.

The release from the SPR proves that. But the SPR release is temporary, it can’t be sustained. A new find by the US would result in a permanent price drop, a more stable world economy and increased US consumer confidence, because of the removal of much of the uncertainty and volatility in the Energy sector–the most expensive component in most people’s expenditures.

Everything, in every aspect of our economy, would improve. Everything.

All we have to do is tell the world we’re serious. The markets will react accordingly. That’s all. Just tell them and be serious. Unfortunately, we’ve done just the opposite.

Comprendez-vous?

Comments

  • http://www.tiffanycooutlet-us.com tiffany sale

    Thanks for you sharing.That is good article.I like it.

  • Whodat

    A silly attempt to shore up some falling poll numbers. It is band-aid on multiple compound fractures and will mean nothing in a week.

  • Alaina

    Agreed. We have other countries drilling just 50 miles off our coasts, but apparently Obama isn’t worried about that.

    I do disagree about your description of speculators. You and I could be speculators in the oil market by purchasing oil futures through an E-Trade account. A speculator is just a short term investor and they can do it for any product type. It would drive speculators out of the market if they thought that measures were being taken to increase supply. Ultimately, it goes back to supply and demand. If we allowed for more drilling or had another viable alternative to oil, that would increase supply or decrease demand, respectively, which would be an indicator to speculators (short term traders) that they price will go down and they will exit the market, which would decrease prices.