Speculation theory ain’t fickle
Apart from the new liberal (and OPEC) mantra that it is speculators — not supply & demand or other factors — that are responsible for driving up the cost of oil, there is a much more right-minded faction who believe that if the U.S. were to announce an aggressive energy policy, that alone could drive down the cost of oil. In other words, while opening the Outer Continental Shelf to drilling might leave us years away from more oil, it could have an immediate impact on the price of oil by dropping prices on the futures markets.
And this week, we’ve seen this theory proven (seemingly, at least). As National Review’sLarry Kudlow pointed out yesterday, the price of crude futures for August delivery dropped $9, or 6%, on the heels of Bush’s announcement Monday that an executive moratorium banning offshore drilling would be lifted. Coincidence? Perhaps, but not likely. Bush’s lifting of the executive order was largely just theatre, since it is meaningless without similar action by Congress, but it was still enough to drop the futures market by 6%. In theory, then, similar action by Congress would have an even more dramatic impact on the market.
Says Kudlow:
The congressional ban on offshore drilling expires September 30, so that becomes a key date. A new report from Wall Street research house Sanford C. Bernstein says that California actually could start producing new oil within one year if the moratorium were lifted. The California oil is under shallow water and already has been explored. Drilling platforms have been in place since before the moratorium. They’re talking about 10 billion barrels worth off the coast of California.
Hugh Hewitt blasts Congress today for doing nothing as the financial markets groan in the wake of the Freddie-Fannie debacle, saying that an aggressive energy policy would help ease market anxiety. “Signaling seriousness about energy production — and not just offshore drilling though it should be step number one, but nuclear power and refinery construction as well — is a huge hammer the Congress could use to smash the beginnings of panic,” Hewitt says.
Powerline’s John Hinderaker predicts that Congressional Democrats will buckle before the arrival of the autumn season:
I don’t think the Democrats will be able to take the heat that is coming from voters. My guess is that between now and the election, they will pretend to give in on the energy issue. If that is correct, they will not renew the ban on OCS exploration and will purport, in other ways, to remove government restrictions that keep the price of energy high. In doing so, they will be counting on the one-two punch of regulatory morass followed by litigation initiated by “environmental” groups to prevent any actual energy production from taking place, probably for decades.
Hinderaker is probably right. But if the Democrats stubbornly hold their ground, their hard-headedness could be Barack Obama’s kiss of death. As I’ve pointed out more than once (here and here), the drilling issue has the potential to be John McCain’s defining moment in November. Marc Ambinder suggests that McCain use Obama’s absence in the Democrat candidate’s upcoming trip overseas — a time when candidates typically refrain from attacking their opponents out of courtesy — to hammer home his energy policies.