There’s a saying in the commodity pits in Chicago that goes something like this: “The cure for high prices is high prices.”
The price of a barrel (44 gallons) of “Texas Tea” these days is hovering around the $67 bll mark and declining. Why the decline you may ask? So do I, but here’s what I think is going on.
Russian President Vladimer Putin is getting very pushy these days and hinting nuclear stuff. As we all know, we have reduced our nukes, getting rid of some still-in-good-shape bombs, while Russia has been 86ing worn out stuff. Fair trade?
He took over the Crimea and knowing full well he would incur US sanctions he started dumping US Treasury Bonds on the market to offset his losses in a sanction. China has followed suit dumping T-Bonds. China purchased the Venezuelan state owned oil interests a few years back.
Russia is still angry over the Afghanistan thing back in the 1980s when Texas Congressman Charlie Wilson masterminded and won a covert war against Russia using American taxpayers’ money, along with money from Israel, Egypt, Pakistan and others. In perspective, we have “forgiven” Russia for their major role in causing the US to lose the Vietnam War.
By some accounts, Russia is the largest crude oil producer in the world, second to Saudi Arabia. Some say the Saudis hold top spot. Either way, the drastic drop in crude prices has the Russian economy reeling. They export a majority of their oil production in the form of gasoline, diesel and jet fuel, making hundreds of billions of dollars in profits yearly. And OPEC has refused to cut it’s daily production, thus keeping a glut on the market of crude oil.
And it’s not only Russia but also Venezuela and the Saudis and most other OPEC member nations who are feeling the pinch while we, here in America, are enjoying the lowest gasoline prices in decades.
The upside for us is the lower cost of transportation leading to more travel by air, land and sea. More visits to grandma’s house for Thanksgiving and Christmas. More presents under the tree. Maybe a better car or a new sofa. Maybe braces for three kids. (Maybe a vasectomy, which if it had been done earlier in life, would have eliminated the need for the braces. Think ahead, folks.)
A downside is one we hardly ever consider: the global economy. If the global economy is effected adversely by the lowering of crude oil prices, that means less oversea’s money to buy what few items the United States manufactures for export. The trickle down is less US manufacturing and fewer jobs, outweighing the benefit of cheaper fuel and more “toys.”
Here’s the scariest part, at least for hindsight thinkers such as myself. As I see it, the quickest way to increase the price of crude oil is to create problems in the Middle East Region. Putin already has that ball a-rolling. You can bet the farm on that.
Another consideration is this, brought to my attention by a reader of “Thanks for Listening.” The government is going to feel the pinch as well and will no doubt raise the gasoline, diesel and jet fuel taxes to accommodate the revenue lost by the lower crude prices. It’s an excuse they can use on us anyway. Thanks for the insight, John.
Some folks say we are at “Peak Oil Concept” at this time. Some say it happened a decade ago and I say it’s still to come, maybe in 10 years or so. POC is the point in time when we have used up half of the world’s supply of crude oil.
What happens when we run out of oil? That’s what the solar and wind people are thinking right now. They’re building huge wind farms across the nation and are developing consumer-friendly solar energy for the home. But the oil business people are fighting them for selfish reasons, much like Warren Buffett is fighting the XL Pipeline (covertly, of course).
As I have said before; when dealing with things government, always take their “wisdom” with a cup of common sense and a pint of skepticism t.i.d.
That’s it for now folks. Thanks for listening
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