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The Danger of Unstable Oil Prices

While Al Gore’s elitist acolytes are yearning for higher prices that can reduce oil consumption and emission of carbon dioxide, homeowners in New England and commuters everywhere are not happy about the additional cost—to say the least. It’s even making the stock market nervous, since higher energy prices cause inflation by raising also the cost of food and manufacture. Fortunately, U.S. electricity production is based mostly on coal and nuclear energy, and not much affected by what OPEC decides to do about oil prices.

The sudden price jump has sparked congressional calls for to opening the oil-rich Arctic National Wildlife Refuge, a major US oil province. The White House has promised a veto, even though only a minute fraction of this vast area would be affected. But if citizens remain unhappy, as truckers driving their rigs to Washington just demonstrated, Clinton-Gore may reconsider. After all, it’s an election year.

Other reactions to the price increase range from the pitiful to the ridiculous. Politicians are grandstanding; Secretary of Energy Bill Richardson, bucking for the VP slot on the Gore ticket, is trying to jawbone the sheiks and emirs into increasing production. At the same time, the anti-nuclear Union of Concerned Scientists blames the high prices not on OPEC but on gas-guzzling SUVs “owned by rich Americans.” But after the mathematicians of the Union of Confused Scientists neatly arranged ownership by state, we noticed that the number for Mississippi exceeds that of the state of Connecticut. We never knew there were so many rich people in Mississippi.

The serious problem here is not just high price but instability. Within a matter of a few weeks, the world price of petroleum tripled, moving from about $10 a barrel to more that $30. This was accomplished by the joint decisions of a handful of oil ministers acting on behalf of their governments. These same men can, at any time, drop the price back to $10 by pumping oil wells at full capacity. Such manipulations of the price can and will seriously damage the domestic oil industry, and particularly the small operators and independents who drill in the continental United States. When the price drops below a certain level, typically $15 a barrel, many of the “stripper wells,” producing only a few barrels a week, must close down as operating cost exceeds revenue. But once these wells have been plugged (according to law), the remaining oil is left in the ground and lost forever—even if the price goes back up again. It is conceivable that certain foreign oil producers are jiggling the price of oil up and down in order to accomplish just that—to eliminate as much U.S. oil production as possible.

The current White House has sided with foreign producers by banning further oil development off the East and West Coasts. But with oil imports now at 54% of total consumption, Clinton-Gore may have second thoughts.

Yet just last October, Al Gore vowed that, if elected, he would issue executive orders revoking the 180-or-so federal oil leases offshore from California and Florida, for which oil companies had already paid the government billions of dollars. If you are concerned about the environment, take note that such an initiative would lead to increased reliance on imported oil, which of course, would have to be shipped in tankers. It’s really an easy choice: Would you rather bring in oil from overseas in accident-prone tankers or through much safer pipelines from the Unites States continental shelf? And that’s not even counting the security and trade-balance implications.

Higher prices will probably not last much beyond the summer and then return to more reasonable levels. But the experience should give us pause to think very carefully about policies needed to safeguard the U.S. consumer and producer from price swings. Let’s hear about this from the presidential candidates when they debate energy and environmental issues.

Atmospheric physicist S. Fred Singer is a Research Fellow at the Independent Institute, Professor Emeritus of Environmental Sciences at the University of Virginia, and former founding Director of the U.S. Weather Satellite Service. He is author of Hot Talk, Cold Science: Global Warming’s Unfinished Debate (The Independent Institute).

From S. Fred Singer
HOT TALK, COLD SCIENCE: Global Warming’s Unfinished Debate
Distinguished astrophysicist S. Fred Singer explores the inaccuracies in historical climate data, the limitations of attempting to computer climate models, solar variability, the effects of clouds, ocean currents, and sea levels on global climate, and factors that could mitigate any human impacts on world climate.

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