Saturday, October 11, 2008

More Bad News: Oil Prices Contine to Drop

The title is of course sarcastic. Glenn linked to a blogger post on this topic a while back but I resisted the urge to comment on it. Now that CNN/Time has entered the foray, I feel compelled to post.

Yes gas prices are indeed falling. Oil dropped to below $83 a barrel and gas prices are down significantly across the country. You might think this is a ray of good news in a blinding darkness of economic horror stories. Some would disagree this is good news.

First up, Instapundit's links to this blog post at "gas 2.0" blog.
As of this writing, Gasoline in Denmark is about $9.00 a gallon, compared to $3.65 in the United States. (Up from $2.50 a year ago and down from $4.50 two months ago.) It seems like $9.00 a gallon gas in Denmark would decimate it’s economy right? Since 1981, there economy has grown 70 percent while energy consumption has been flat. In 1973, Denmark got 99 percent of it’s energy from the Middle East. Today, it gets zero.

We’ve become spoiled in the United States. We have grown up thinking that the oil that runs everything from our cars to our industrial complex, is cheap, inexhaustible and politically neutral. But we have come to an age where we realize that oil is in short supply, expensive, environmentally damaging and a political nightmare.
So oil is expensive now. But the author is complaining that it is NOT expensive. He suggests we tax gas heavily:
I say it’s time to raise the price of Gasoline in this country. It’s time to drive this economy toward a sustainable energy program that will benefit our economy, our lives and our environment.
Yes, that is what we need. Financial markets are in a meltdown and we need to raise taxes on things people can't afford to live without. That's a fantastic idea.

I didn't think much of these ramblings until today, when CNN linked to this Time article that has the same sentiment.
For oil-rich countries the slump has come at a bad time. As the oil price began rising during the past few years, governments and big oil companies plowed billions into exploring and developing new fields in Russia, Angola, Mexico, Brazil and Saudi Arabia — projects whose costs have more than doubled in the past few years, in part because soaring steel prices drove up drilling equipment costs and oil-rig rentals. Just as global demand has begun to slow, millions more barrels of oil a day from new fields have hit the world market.
I feed deeply sorry for the oil-rich countries. They certainly haven't made a economic killing milking their resource for all it is worth. To think Saudi Arabian princes might only be able to buy a Rolls Royce a month instead of a week. The horror!

It gets worse:
For some countries there is a fear far greater than an economic recession: political turmoil. Iran, which earns 80% of its revenues from oil exports, set this year's budget on the assumption that oil would trade at $90 a barrel — a figure which seemed conservatively low until recently, but which is now above the world price. "If the price stays there a while Iran would cut spending," Priddy says. That might include cutting heavy gas subsidies for Iranian drivers, who have rioted in the past when the government tried to ration gas or raise the price at the pump. Hugo Chavez could face similar problems in Venezuela if oil prices drop below $75 a barrel — the rate at which the country calculated this year's budget. The problems lower prices could cause in those countries could be more visceral than those posed so far by the current financial upheaval.
Iran might have to cut spending? Chavez's "master plan" might unravel? Isn't this the best news you've heard all day? Chavez cheered as Wall Street crashed--proof in his warped mind that capitalism had failed. I happily await the chaos in his own country that he deserves.

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