Oil, deficits and subprime
A few comments on some comments by others. First, oil prices are not determined by the oil traders, over 95% of the world oil reserves and production is owned and controlled by governments - not oil companies. Oil companies are typically allowed in foreign countries to obtain ownership barrels by spending hard dollars on exploration and development. They get barrels in exchange for expenditures. Over half of the production is bought by them at market prices from the government owned companies. Traders can only effect short term small swings since they can't take any long term trading risks. I helped to set up many of the operations and know how they work and their effects on the market. The main reason for the oil price increase is that the world oil market is denominated in dollars - no other currency is as liquid as ours plus we are the largest importer. As the Federal Reserve System lowered interest rates, the dollar began to fall and some disintermediation occured as foreign investors began to move to other currencies due to our lower return. this put further pressure on the $ and the decline continued, further raising oil prices as the OPEC members were able to raise prices to largely offset the reduced buying power in world markets of the $'s they receive. There are two major problems underlying this problem. One is that as a nation, due to our tax code, we have lower savings rates than many undeveloped countries and all of the developed countries. Our tax code encourages consumption, not savings. The second is that our energy imports, both oil and gas, are significantly higher than they should be due to environmental restrictions. Of the energy prospective areas left in the US that contain oil and gas, over 85% are off limits due to environmental restrictions. This goes well beyond ANWAR. It includes the Atlantic seaboard, offshore Florida, most of the Rockies, and offshore California.
One last note, as the dollar has declined in world markets, unlike one comment earlier in the thread, our trade deficit has shrunk significantly since there is more demand for American products due to lower prices. This is but one of the numerous "self correcting" features of the world economy. Every action has a reaction and a consequence that tries to move the system to equilibrium.
A few comments on some comments by others. First, oil prices are not determined by the oil traders, over 95% of the world oil reserves and production is owned and controlled by governments - not oil companies. Oil companies are typically allowed in foreign countries to obtain ownership barrels by spending hard dollars on exploration and development. They get barrels in exchange for expenditures. Over half of the production is bought by them at market prices from the government owned companies. Traders can only effect short term small swings since they can't take any long term trading risks. I helped to set up many of the operations and know how they work and their effects on the market. The main reason for the oil price increase is that the world oil market is denominated in dollars - no other currency is as liquid as ours plus we are the largest importer. As the Federal Reserve System lowered interest rates, the dollar began to fall and some disintermediation occured as foreign investors began to move to other currencies due to our lower return. this put further pressure on the $ and the decline continued, further raising oil prices as the OPEC members were able to raise prices to largely offset the reduced buying power in world markets of the $'s they receive. There are two major problems underlying this problem. One is that as a nation, due to our tax code, we have lower savings rates than many undeveloped countries and all of the developed countries. Our tax code encourages consumption, not savings. The second is that our energy imports, both oil and gas, are significantly higher than they should be due to environmental restrictions. Of the energy prospective areas left in the US that contain oil and gas, over 85% are off limits due to environmental restrictions. This goes well beyond ANWAR. It includes the Atlantic seaboard, offshore Florida, most of the Rockies, and offshore California.
One last note, as the dollar has declined in world markets, unlike one comment earlier in the thread, our trade deficit has shrunk significantly since there is more demand for American products due to lower prices. This is but one of the numerous "self correcting" features of the world economy. Every action has a reaction and a consequence that tries to move the system to equilibrium.
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