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Oil price falls/rises with allowing/banning offshore drilling

As gas prices rise, it’s very interesting to look at a chart of oil prices (e.g. here) and to compare the prices on two particular dates: July 14, 2008 and February 10, 2009. Those dates are just about the top and bottom of the price curve. So what happened on those two dates?

On July 14, 2008, President Bush lifted the ban on offshore drilling for oil. That very day the price of oil fell from its all-time high of $147.27. By the end of the week, the price had fallen $16. Within a month the price dropped to $115 and continued to fall pretty steadily until it bottomed out at about $35 in mid-February, 2009.

On February 10, 2009, the Obama administration reimposed a ban on offshore drilling. Within days, the price of oil started to rise. By the end of February it had jumped from about $35 to almost $45. In April the price reached $50 and in May passed $60. Now it is almost double the price when Obama blocked drilling.

Is it a coincidence that the price fell when Bush allowed drilling and then rose when Obama blocked drilling? I doubt it. It seems much more likely that Bush’s action caused the price to fall and Obama’s action caused the price to rise.

Some people might object that a simple announcement couldn’t affect the price because it would take 5 or 10 years to actually get the oil out of the ground. What they don’t realize is that the price of oil today is affected by the perception of the future price. Oil producers who expect the price to fall in five years prefer to sell today at a relatively high price rather than leave the oil in the ground and sell at a lower price five years from now. Conversely, producers who expect the price to rise are inclined to leave the oil in the ground until the price does rise.

Obama has said that he likes high gas prices because they discourage use of carbon-based fuel and encourage the development of alternative energy sources. His Congress is working on a “cap and trade” bill that will raise energy prices even more.

When will people realize that Obama and a Democrat Congress are bad for our pocketbooks?

P.S. Back in July, when Bush lifted the ban, Reuters described it as “a largely symbolic move unlikely to have any short-term impact on high gasoline costs.” Right.

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