Oil at 140: What Can Be Done?

July 8, 2008

All this talk about offshore drilling, tapping the Alaskan wilderness is just that “talk” that doesn’t address the central short term issue of the world’s most precious commodity (oil).  What can be done NOW? For the record, the United States consumes about 21 million barrels of oil a day of which about 70% goes for gas and diesel fuel. Gas has become a major expense in most households and as a result, American’s are cutting back where they can but, they still have to feed those SUV’s they bought when the price of gas was within reason.  Nationwide, everyone is thinking fuel efficiency and, it won’t be long before the speculators wake up and realize that they have created an oil surplus due to overproduction and conservation.  At that point, Humpty Dumpty will have a great fall. Can all the kings horses and all the kings men, put Humpty Dumpty together again? Probably, but we'll have to reinvent the dollar.

What to do NOW?  Don’t believe the oil analysts who say that speculators are not the cause of rising oil prices.  Fact is, they are making millions betting that the price of oil will continue to rise.  To make matters worse, a substantial portion of these contracts are being used as collateral to help bolster balance sheets on Wall Street. And who's paying the price?  We are.  For starters, attack this bubble  and suspend the trading of oil future paper contracts until such time as supply and demand fair value can be determined. 

How does it work?

Speculators are betting that the price will go higher and guess what, it does. Let’s go back in history.  The price goes over $70 - $80 - $90 and then …$100. No outcry, the government isn’t saying STOP so, the money game continues.  More bets that the price will even go even higher and, it does and now, it’s at $120 a barrel.  Time to put out some talk about adding to the national reserve or some bogus story that supplies are being interrupted somewhere around the world.  And then, price goes higher, and more bets that it will go even higher.  You would think at some point, the government would have stepped in threatening to suspend the trading of the “paper contracts” in oil.  Nope! Business at the Mercantile Exchange continues to soar.  Everyone is making money. Slowdown! Not a chance. Push the envelope … We still have a ways to go … Now we’re at $140.  Nothing yet! What will it take? My guess is a total collapse of the system in general because sooner or later, the dollar will collapse under the weight of all the debt that is being created to pay for the actual commodity: OIL. In other words, if nothing changes, we’re going to test the limits of the American financial system.  Yes folks it’s getting serious and you can be sure that the consequences of our business as usual attitude will lead to a lower standard of living and if that happens, and it could, civil unrest will follow.

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