We are being led to believe that by expanding offshore drilling we will get enough oil to eliminate our dependency on foreign oil. They tell us that it will also lower the cost we pay at the pump. Nothing could be further from the truth.
In the last week, Bush instructed the McCain gang to change their longstanding positions to support offshore drilling. In a flash, Republican presumptive nominee John McCain, Senator Lindsey Graham (R-SC), Governor Charlie Crist (R-FL), Senator Mel Martinez (R-FL) and the rest of the party loyalists flip-flopped and lined up behind Bush. Martinez, as you recall, only days before had called out VP Dick Cheney for his lie that China with Cuba’s help was already drilling 60 miles off of the coast of Florida.
The Republicans are spinning this issue to a very simplistic, but inaccurate supply – demand point of view. “Well, what you do is you have a supply-demand problem. The more domestic supply, the better we are off as a nation,” said Senator Graham on Sunday’s Meet the Press. “I think it gets you some immediate relief,” he continued.
More spin from Senator Graham: “Cuba is doing a deal with China, potentially, to drill off our shores. So yes, now is the time at $4 a gallon, $135 a barrel oil, to find more oil and gas here at home.” Notice how Graham has softened the ‘Cuba is drilling 60 miles off our shores’ comments from the VP to ‘potentially’. Graham also throws the high prices at us because that is what will get the people’s support. He never addresses the root cause of the higher prices.
One of the buzzwords surrounding this is ‘drilling’. They want the Saudi’s to drill more. They want us to drill offshore. The fact is, we want the Saudi’s to “pump more of what they’re drilling. They’re not pumping what they could,” said Senator Joe Biden (D-DE) also on Meet the Press. Yes, it’s a game of semantics but as we’ve learned, politicians are extremely careful of their word choice. In this case, drilling and pumping mean two different things.
Offshore drilling facts
First of all, we must address that there isn’t a ‘federal ban’ on offshore oil drilling. There are roughly 68 million acres leased (40 million offshore). Anyone remember the videos of the oil rigs in the Gulf of Mexico as Hurricanes Katrina and Rita made their way towards Texas and Louisiana? No, there is a moratorium on leasing the reaming 600 million or so acres to the oil companies.
Currently, only 10.2 million acres of the 40 million available are actually in operation, pumping oil out of the ground. That begs the question: Why aren’t they pumping from the other 75%?
“Oil companies have 39 million acres under lease for drilling in the Gulf of Mexico, but they’re drilling on less than 8 million acres of that,” said Rep. Debbie Wasserman Schultz (D-FL).
“Why are they not pursuing what’s estimated to be a total of 70–54 billion barrels of oil at their disposal right now if they pump?” Biden is asking a key question. Why are the oil companies not pumping anywhere near capacity?
Biden continues, “It’s because they want to get [the remaining 600 million offshore acres] in before George Bush leaves the presidency. It’s because they’re not pumping the oil to keep the price up. They are not even drilling. So here you have 30 million leased acres they have right now that possesses 79 percent of all the offshore, and they’re not drilling.”
“And it would take 10 years for it to come online,” concluded Biden. According to the Department of Energy, lifting the moratorium “would not have a significant impact on domestic crude oil and natural gas prices before 2030.”
Hedge funds facts
Many expert economists have already reported that the current price of crude oil that we see today has no direct relation to supply and demand, as has the US Senate. In fact, as F. William Engdahl stated in an editorial (sourced below) “It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price.”
A key component here is the Commodity Futures Modernization Act of 2000 which was written by Senator Phil Gramm (R-TX) and Enron lobbyists. Included in this legislation was a huge loophole that deregulated over-the-counter energy trades. This was what permitted Enron to make huge profits, as prices skyrocketed. Remember the rolling blackouts in the west? Then the bubble burst. This same loophole is being used to drive up the price of crude oil.
“… [T]here is substantial evidence that the large amount of speculation in the current market has significantly increased prices. Several analysts have estimated that speculative purchases of oil futures have added as much as $20-$25 per barrel to the current price of crude oil, thereby pushing up the price of oil from $50 to approximately $70 per barrel,” at reported in ‘The role of Market Speculation’ from a June, 2006 U.S. Senate Permanent Subcommittee on Investigations report.
No longer is the price of oil being controlled by OPEC. As a result of the oil futures trading, that control has shifted to Wall Street.
Thanks to the Enron loophole, it is now possible to trade these energy commodities without oversight since reporting of the large trades of energy commodities is not required thus making it impossible to ‘detect and deter price manipulation.’
“A glance at the price for Brent and WTI futures prices since January 2006 indicates the remarkable correlation between skyrocketing oil prices and the unregulated trade in ICE oil futures in US markets,” Engdahl concluded.
Another factor in the increase is the devaluization of the US dollar compared to the Euro and other world currency. As the dollar weakens, the price per barrel must adjust to world market prices thereby driving the price of gas higher.
So politicians and the media have been playing ‘Three-card Monte’ with us as they take our attention from the real root of the high gas prices and have us focus on the irrelevant offshore drilling. The only way out of this mess, is to close the so-called Enron loophole and seek out alternative fuel and energy sources.
And don’t look now, but Exxon Mobil, Shell, Total, BP and Chevron are completing a deal that will return these oil giants to Iraq.
Biden and Graham quotes from
Transcript for Meet the Press (22-June-2008)
Perhaps 60% of Today’s Oil price is pure speculation
by F. William Engdahl (2-MAY-2008)
The Role of Market Speculation
United States Senate Permanent Subcommittee on Investigations (27-JUN-2006)
Department of Energy’s Annual Energy Outlook 2007, (Jun-2007)
Deals With Iraq Are Set To Bring Oil Giants Back
by Andrew E. Kramer (19-JUN-2008)