Posted by
The Dave Perkins Brothers on Monday, August 04, 2008 9:55:44 AM
If we passed a law permitting drilling in the various parts of the USA which have plentiful oil, the price would drop significantly, immediately.
The purchase of oil is a futures market, and everyone is a speculator. When a refinery buys oil, when an airline buys fuel, when a gasoline distributor tops up his big tanks, they're all CONTRACTS FOR FUTURE DELIVERY, with terms that vary according to time length and price and so forth.
Southwest Airlines is highly profitable at present, while every other airline is near fiscal death. The reason? Southwest committed very large amounts of money a long time ago to a 'future contract for delivery' of fuel at those present day market prices. Consequently, they are paying prices MUCH lower than we have now. They contracted for it, tying up 'present' money a couple of years back in a bet that prices would go up and their use of that money would turn out to be a good risk.
They were right. In essence, while we pay $4 a gallon they're paying $2.50 over at Southwest Airlines. Because they contracted for it, and they are fulfilling their end by paying while the fuel company fulfills their end by delivering fuel at that price. (yes, I know it's Jet A, yes I know the price is different... I"m just metaphoring here.)
EVERYONE who buys fuel commercially does this. They all make contracts for future delivery. It might be next week, or next year, or next decade. But it's all 'futures' speculation. Anyone who owns a contract for delivery, if that contract should happen to become a valuable document, can sell it to someone else at a profit.
And everyone is speculating on the FUTURE. Those who buy big contracts for long terms are betting, speculating, the price will be higher in the future. And the purchasing of large contracts today ties up supply in the future, reducing it, making supply lower and demand proportionately higher.
Today's buying of oil and fuel CHANGES the price tomorrow. Even if today's buying won't be delivered 'til next year.
Can you IMAGINE what the traders will think about the future price if the United States takes steps to add a trillion barrels of SUPPLY to that future?
I can. They'll assume future prices will be LOWER. And that means the contracts bought today will slack off, as people realize they don't need to 'lock in' a price, that it will be lower later.
And THAT will lower prices TODAY, as the future supply will be seen to be plentiful because the present buying has slowed down.
THIS IS HOW THE MARKET WORKS.
Liberals try to say it won't make any difference for ten years, so we shouldn't do it now. But doing it now is precisely how we change the future, and thus change the way the future is viewed by buyers and sellers.
Prices have skyrocketed because nobody has seen a way to match the supply to increasing demand. Now people are seeing it. Prices have dropped $15 or more on a barrel of oil in the past couple of weeks. In my humble opinion, it's PRECISELY because the Dems appear to be losing their battle against the American people, and it looks more and more like the future will see more supply on the market.
Prices can change quickly, just on today's events. The stock market has been falling lately because, in my view, investors know Obama will raise taxes punitively and hurt business by it, and the stocks will be less valuable, so they're selling NOW to take away their future risk of an Obama presidency. I predict, here and now, that if McCain is elected the stock markets will rally BIG TIME. Bets on the future will increase, because future risks will be limited, as McCain is promising to oppose tax increases. (campaign promises are another post altogether, of course, but Obama has promised to raise taxes and no politician has ever broken THAT one.)
Oil prices have been falling lately too, because the future of supply is beginning to look brighter; the polls say the people want it, and as we found out two summers ago with the immigration 'reform' bill, if the public pressures congress enough, congress will eventually have to act to please them.
So don't believe anyone who says it makes no difference today. Investors and buyers and sellers of today make their decisions based on what they think about tomorrow. If tomorrow looks different, today's decisions will change too.