Greg’s Note:
There must be someone to blame for this energy crisis. Surely
there is one single entity that is causing all of us to suffer.
This is at least what some members of our Congress believe. Oil
speculators have become the villains in this tragic tale.
Outstanding Investments’ Byron King doesn’t think that should
be the case, however. While oil speculation certainly is an
important and influential area of our economy, these speculators
should not be painted with the brush they have been. Do you think
speculation is to blame, or could there be other reasons for the
tremendous price-rise? Write in with your comments to
greg@whiskeyandgunpowder.com.
By Byron W. King
Pittsburgh, Pennsylvania, U.S.A.
July 8, 2008
With the price of oil
doubling in the past year, there are more fingers being pointed
than solutions being offered. Unfortunately, one of the biggest
“culprits” garnering much of the blame has been the oil
speculators. Congress has decided to make them the scapegoat for
our energy concerns, and unfortunately many under-educated members
of the public are beginning to lap it up.
Speculators are speculating
because there is something about which to speculate. (Let me thank
my sixth-grade English instructor for teaching me how to compose
that sentence.)
Remember when oil ran up
back in 1979 and 1980, when the entire Iranian oil industry
collapsed in the wake of Ayatollah Khomeini’s Islamic Revolution?
About five million barrels of oil per day simply left the world
marketplace. It was gone — poof! Not there. No tankers.
~~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~~
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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Even though five million
barrels went away, people could still look to places like the
North Sea, Alaska, Angola and elsewhere. And they could feel
certain that sooner or later, there would be future oil supplies
flowing down the pipelines.
But that’s not the case
today. When people look ahead now, they don’t see from where the
oil of the future will come. Most of the world’s current large oil
fields are in decline.
As for the so-called oil
speculators, they are just defending the value of their money.
They are looking forward a few years. What do they see? All of the
current energy development projects will just barely replace the
oil that will NOT be coming from declining oil fields. So peering
ahead, there’s no net increase in future oil output. We’re looking
at a plateau in output, if not the backside of the Peak Oil curve.
But we are looking at
growing energy demand, as well as demand for other resources. So
investors have placed hundreds of billions of dollars into energy
and other commodity funds during the past two years. They are both
hedging against dollar inflation and anticipating future supply
shortfalls.
Long term, this is great
news for one of my Outstanding Investments
recommendations, a Canadian tar sands company. This company is
facing higher capital costs, as well as higher costs for inputs
like natural gas. And it suffers from a raw political bias
(suicidal, in my view) against synthetic crude oil because of the
carbon dioxide emissions.
Along those lines, some
politicians in the U.S. want to renegotiate the North American
Free Trade Agreement (NAFTA) that includes Canada. Word to the
wise: Don’t go there!
Really, if the U.S.
renegotiates NAFTA with the Canadians, our friends to the north
will have some surprises in store. The U.S. will rue the day that
it tore up NAFTA with the Canadians, because that will just plain
shut off many of the valves on a lot of pipelines.
Seriously, the Canadians
have eager buyers for their energy resources, and they don’t need
us Yankees. Just keep in mind that downstream, people will demand
oil, and companies that have it will make money.
Getting back speculation,
those “speculators” are not the problem. Speculators are sending a
message that policymakers had better heed. American politicians
better get serious about finding pathways through the “energy
issue.”
Although I do have
political opinions, I try to keep them private, especially careful
not to hurt the feelings of any of my readers.
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But that does not mean that
I don’t have opinions within areas of my own expertise. If you are
reading this, you must know that oil prices have doubled in the
past year. There are profound supply issues looking forward. (I’ve
been writing about Peak Oil and related issues for Agora Financial
for four years.) And world demand is still rising, despite the
very slight pullback in U.S. oil usage in the first half of 2008.
Whoever wins the race had
better be ready to think in terms of energy. And I mean from day
one.
Energy is not just “another
issue.” It’s not as if a politician could “do energy” and then
move onto other important items on the agenda — like appointing
your friends federal judges and handing your political donors
prestigious ambassadorships.
Energy will be the defining
issue of the next president’s term of office. This is already
baked into the cake. Nothing will change it, short of a major war.
And even fighting a major war will be controlled by the energy
issue (as was World War II, by the way — another long story). The
U.S. won’t go to war over most things. But we’ll fight over
energy. Or where have you been?
Every U.S. president has
had something associated with his term of office. It might be
good. It might be bad. But it’s the shorthand way in which we
remember the guy. When I think of Lyndon Johnson, I think of the
Vietnam War. When I think of Richard Nixon, I think of Watergate.
When I think of Ronald Reagan, I think of him meeting with
Gorbachev and winding down the Cold War.
The next president’s big
issue is already on the table. It’s energy. It has been decided.
The gods and fates have so dictated. Everything else is window
dressing. Everything else is just the White House Easter egg hunt.
Nothing else will control the outcome of the next president’s term
of office. Energy, that’s it.
Energy. Take it or leave
it. Except you can’t leave it. The nation needs to get energy
right. We can have energy supplies for the economy. Or we can just
decide to wind down the 232-year-old experiment called the United
States of America. We can hop, skip and jump into James Howard
Kunstler’s
The Long Emergency. It’s that stark.
Here is the slogan for the
next White House Situation Room: “It’s the energy, stupid.”
Practice is over. It’s game day. It’s time to suit up and play.
What’s your plan?
And we can’t just do 20
more years of energy research. Really, suppose that nobody ever
filed another patent for a new and better invention in the field
of energy. We could spend the next century just rewiring the
nation based on what we already know how to do. The future is one
of systems engineering. The future is all about taking the ideas
and technology that’s already out there. Bring them down off the
shelf and make them work to run the country.
So if the next
president-elect is not ready to tackle the energy issues of this
nation, he just ought to stay home on Inauguration Day. Don’t
waste our time.
Until we meet again…
Byron W. King
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