Monday, July 14, 2008

Psychological Hypothetical

I've heard this said: that merely ANNOUNCING that we will allow domestic drilling will bring down the price of oil. And yet (hat tip to commenter Nicole at CROOKS AND LIARS) today when President Bush rescinded the executive order put in place by the flaming liberal OTHER President Bush to prevent offshore drilling, the price of a barrel of oil climbed slightly. So what does this mean?

A. Announcements like this have no effect.
B. People assume that anything Bush does to help will make things worse.
C. Speculators aren't driving the price of oil as much as oil companies are.
D. It's Clinton's fault.

You tell me. I'm flexible.


wamk said...

It's a combination of things. Bad news in the Middle East (like Iran's recent announcement of lauching missles that could hit Israel)causes the people who deal with oil futures and such to get nervous, and the price goes up.

When good things happen (like announcing we'll begin drilling in ANWR or offshore), the people who deal with oil futures breathe easier, and prices fall.

When you have both things happen at the same time, the people who deal in oil futures have to make a decision-which scenario will have more impact in the long run.

If the events in the Middle East hadn't happened, we probably would have seen a drop in futures prices due to the announcement.

If we hadn't received the announcement of Bush using the executive order to allow drilling, oil prices probably would have gone up higher.

Since they both happened so close to each other, it's basically a wash. Some speculators realize that Bush signing the order means nothing if Congress doesn't approve it, and some speculators probably feel that his signing the order draws the line in th esand, forcing the Democrats to act. Either way, it doesn't change the fact that Iran continues to flex it's muscles, causing.

Make sense?

Danielk said...

I dunno... it seems to me that if it's a wash, the price would at least remain even, not rise.

wamk said...

Don't look now, but the price of oil dropped $6 today, on concerns that high oil prices will hurt long term prospects for the Global Economy.

The Market always shakes things out. Sometimes it takes a bit longer than it should.

While the price of oil is still tremendously high, the guys that set the prices are coming to their senses. If the largest consumer of your product can't afford your product, you make no money.

Danielk said...

"The guys that set the prices?" Would that be Mr. Supply and Mr. Demand? Haha, how snarky I am!

And if the high cost of oil is what's driving down the cost of oil, why do you think more domestic drilling is necessesary?

wamk said...

"The guys" are speculators. They are but a cog in the Supply and Demand engine.

"Someone" has to set the price of a good or service. The Market then tells "that guy" if it's priced too high, too low, or just right.

It's like the Mazda Miata when it first came out. For whatever reason, the Market decided it was the "it" car to have, and people were reselling them for tens of thousands over the sticker price. Did Mazda jack up the prices $10,000? Nope. They just made more of 'em, and slightly increased the price.

Repeat the above example with the following "hot" items: X-Box, Wii, iPhone, Cabbage Patch Kids.

Why in the World did people pay premiums so much higher than what the sticker price was? Demand.

And in any of tjhose instances, did the manufacturers raise their sticker prices to reflect the secondary market? Nope. Apple even LOWERED that price (but increased supply), and made tons of money.

By the way, Oil tumbled even more today after the US Markets closed. Dropped $9 just on Bush SAYING we should drill. Imagine how much further it will fall when we actually begin.

Here is a link for you:

p.s. It's ok to now admit that what all of us on the Right have been saying, that if we announce drilling will begin, oil prices will drop.

Everything has it's tipping point. Clearly $4.50 per gallon oil is that magical figure that actually makes Americans stop driving. OPEC ain't dumb. When you see your best customer stop using your product, and your second and third best customers can't step up to fill the void, you have to lower your prices. Couple that with your best customer saying he can get your product out of his own backyard, and you're in more trouble.

60% of the American Public thinks we should drill here. Clearly OPEC understands those polls more than Reid, Pelosi and Obama do.

Danielk said...

Honest, I understand the law of supply and demand. I use Apple computers. So you tell me, why the day lag? Bush signed the executive order yesterday, but the market waited until today to start moving? Those guys don't wait fifteen minutes normally.

wamk said...

Can't tell you why the lag happened.

Like in my earlier comment, perhaps the news of the missle test in Iran was a "competing" factor in the price, and it took the Market a day or two to decide which event had more long-term ramifications..

wamk said...

And it's Clinton's fault.