Nader Spoke About Oil Prices

…Smart Not to Listen?

Today’s post is in reply to an article a friend of mine sent to a few of us, getting the thought-processes going within me. Nader’s article about Oil Prices (note: scroll down to “Who Determines the Price of Oil”), and the current state of the environment we’ve encountered to due high prices is good and states a lot of the points many of us (myself included) agree on and know well about. BUT, he fails to deliver a little more substance. Which I’ll explain further…

While Nader made some legit points, he makes some generalistic statements that are actually not true. While I really dislike saying this, he’s actually biased against the oil companies in this article. Yes, the original big oil companies ran the industry until OPEC took over, but his two points about Futures’ Trading and R&D are a little too broad and not the entire B&W picture he paints it to be.

1st: Yes Futures’, and Commodities’ trading are part of the equation that have driven oil prices to where they are today, but to tag the NYMEX/MERC (world’s largest physical commodity futures exchange), as the next evolution in the governing bodies of oil distribution in the world is a little too much. And, to also dismiss speculative trading as a major foundation for current prices is lazy logic at best. Futures’ contracts are a hedging tool, where Institutional players (think major corporations, Govt entities, and Agricultural conglomerates) use it to counter rising/falling commodity prices (oil, energy/metal, and food prices) for the current year by placing “bets” that they’ll fall/rise in the future, thus producing a zero-sum situation for them. The airline industry uses this big time to counter rising or falling fuel prices.

BUT, Nader fails to realize that it’s not the estimated current supply or near-term supply but the long-run supply that’s the impacting factor on rising rates. The media always quotes barrel inventories (which come out on a weekly basis), but failed to give long-term estimates, which many scientists and others are seeing, just as much exposure. Only now, are more and more major networks waking up and seeing the sudden realization that we have to look for alternative sources of fuel for our daily consumption. Given our current technology level (and factoring near-term advancements in streamlined development and exploration) we could probably see oil resources become significantly low in less than a century, and that’s likely without tapping all major protected lands.

Supply may be somewhat adequate right now, and maybe for the next 25 years, but in the long-run we could face a very serious shortage on oil inventories. Right now, many Middle Eastern nations are bracing themselves for when their oil fields run dry by turning to other economic industries (see: Dubai). While we have the resources right now, and continue to advance drilling and surveying technology, there’s only so many areas you can locate resources before it runs out, or becomes too expensive to produce and process.

2nd: While it may be somewhat true that the big oil companies/entities haven’t been as aggressive in researching drilling/exploration technology as they have in the past, Nader fails to realize and note that they’re also busy redirecting that R&D towards alternative fuels and more efficient ways to use current oil/gas resources.

Companies like British “Beyond” Petroleum (BP) are pledging their vast monetary resources to develop and research natural renewable resources like Wind, Hydrogen, Ethanol, etc. Others in the industry are working alongside auto manufacturers to progress more fuel efficient cars, and develop resources that emit cleaner byproducts into the environment.

Let’s not be so quick to write these guys (the oil industry) off, they’re making an effort (one which I would like to see eventually progress further and become more adamant), and effort takes time. And only time will tell if we’ve run out of that resource. We’ve read Nader’s point of view, and I’ve given you a summarized version of my two cents on the matter, feel free to add your’s to the mix.

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~ by drcorner on July 21, 2008.

One Response to “Nader Spoke About Oil Prices”

  1. First of all – How dare you hack my stuff without clearing it with me first 😉 j/k…

    We will be in trouble if we don’t look harder at finding alternatives to our current and dominating fuel source. If you look throughout history, one the largest contributing factor to the demise of most empires was the reliance on fuels that could not be renewed. Another factor to their demise was going beyond the supply-line, but that point is less likely to play a part in any collapse to the U.S. due to the distances we can travel and the time it takes. However, if we cannot maintain or create another means to supply fuel, we will not be able to fly our planes, ferry our ships or drive our trucks.

    But I digress.

    Nader’s points were obviously generalized in the context in which they were delivered. This was not a book, but he did cite one. Had it been a book, I can only imagine that Nader would have expounded on how the current state of our oil supply and the demand of said supply should not be such a contributing factor driving gas prices higher.

    The phenomenon is drastic. Only a year and a half ago gas prices were half of what they are today and a barrel of oil was 1/3 the price.

    Why?

    Of course events in the Middle East and storms in the Gulf have had something to do with it, but that is a superficial assessment. The supply of oil is greater than the overall demand, which only adds questions to the spike in prices, which is contrary to what many politicians on the Right would like us to believe. Why would the Right be so afraid when Senator Obama has indicated that he would put a stop to the de-regulation of oil futures speculation? The cost to produce a barrel of crude oil is less then 1/4 of the market value. This is not by accident. Exxon-Mobil recorded huge profit of over $40 billion. This is at the same time these same executives are crying poverty, which is why they have to raise prices.

    The point is that the price of a gallon of gas or a barrel of oil has less to do with supply or the future of a nation’s need for fuel, but with the greed of opportunistic, carpet-baggers who seized on the apparent gullibility of the American public who is being fleeced.

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