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Sunday, June 15, 2008

My Plan to Bring Oil to $20/Barrel and Keep it There

This plan would assume powers that one individual wouldn't have, however with the right influence, one person or at least a group of people, could accomplish this.

First, I would immediately announce drilling not only in ANWR but everywhere that the U.S. can but hasn't. While we likely wouldn't be able to use any of the oil there for years, the simple signal that the U.S. is serious about finding its own domestic oil supplies would immediately put downward pressure on oil prices. Furthermore, it would signal to the speculators that the jig is up. Speculators don't look at long term trends. They simply ride the technical trends.

Second, I would dump a bunch of the strategic oil reserve onto the open market. This would really punish the speculators. By creating instant supply on the open market, this would immediately drop the price of oil. Furthermore, since most speculators buy on ridiculously low margin many of them would now have margin calls. This could create a vicious cycle in which lower prices lead to sell offs and so on.

Third, I would begin raising the prime rate until it got to 4% from its current 2% standing. Prime has been dropped far too low in my opinion anyway. It is leading to inflationary pressure. It needs to be raised to alleviate that. Furthermore, raising the prime rate would bolster the dollar. Since oil is priced in Dollars, this would put further downward pressure on the price of oil.

Fourth, I would raise the margin on oil futures from 5% to 50% effective at the beginning of next year. After oil takes a dive, most speculators would look to get back in. This would keep all but the professionals out. The ridiculously low 5% margin on oil futures creates exactly the sort of environment in which speculation occurs. Raising the margin to 50% would discourage speculators from driving the price of oil up in the future in the same way it has been now.

Finally, I would immediately implement my plan for energy independence. I would lower the capital gains, corporate, and dividend taxes all to zero on any company or division that produces alternative energy sources or a means to procure them. (and keep such a moratorium for ten years) This means any company that produces wind power would be the beneficiary, but also any company that produces tanks specifically for hydrogen fuel cells would else qualify. Furthermore, any division of any of the big oil companies that specializes in alternative energy sources would also qualify. This would signal that not only is the U.S. serious about holding down the price of oil in the short term but we are serious about creating alternative energy in the long term.

By implementing all of these various policies we should see $20 a barrel for oil by the end of the summer.


Anonymous said...

I like it......would add a step regarding more aggressive conservation measures and you have a winner here!

mike volpe said...

I am not against conservation. Certainly, I encourage everyone to drive less especially with how much it costs now, however I don't really believe the government can organize an effective effort to force people to conserve.

Though, if someone has ideas, I am open to seeing that I am proven wrong on this matter.

Anonymous said...

One example could be enforcement of higher MPG requirements....

mike volpe said...

That may work though I am not a very big fan of mandates. I don't think that we can or should mandate energy independence, conservation, or anything else.

People should never be forced to do something. They should always be encouraged to do it.

Forced MPG standards is the sort of idea that a liberal would propose.

Anonymous said...

This isn't far off from the Republican plan in the Senate.

mike volpe said...

There might be elements in the Senate though I have never heard anyone suggest slashing taxes specifically for alternative energy sources as a means of stimulating investment in those areas. Furthermore, the Senate doesn't control the Prime Rate.

That said, if the Senate is pushing several of these points, then they need to speak up. I am a political junkie and have heard nothing. If I have heard nothing, I doubt the average person has. If no one knows they have a plan, then the plan is rather worthless.

Anonymous said...

Jim C

To lower the cost of oil we should:
(1) Drill everywhere (of course, with reasonable environmental protections.)
(2) Pass a law phasing out all oil burning ground vehicles over a fifteen year period. Let the car makers choose the alternate fuels they want, but require that 7 percent of all vehicles sold in 2009 be non-oil burning, 14 percent the next year, etc. This will assure a market for the new fuels.
(3) Demand IMMEDIATE conservation measures, starting with a national 50 MPH speed limit with a mandatory license loss for the second conviction in a year. (Yes, the country can stand this, we managed 35 MPG during WWII.) Put am automatic repealer in the speed limit law to kick in when a majority of the vehicles on the road are non-oil burners OR the nation is self-sufficient in petroleum.
(4) Place a tax on imported oil to keep the price above $3 per gallon no matter how low OPEC oil goes.

WE CAN AFFORD EXPENSIVE GAS BETTER THAN OPEC CAN AFFORD CHEAP OIL. Let's drive the price down and let the ragheads eat sand.

Anonymous said...

50 MPH speed limit? Put down your crack pipe, dude! I do believe that Detroit SHOULD be forced to increase MPG standards for new cars and trucks NOW.......and by a drastic margin. The biggest reason the prices are going thru the roof are the speculators.....they should all be arrested and shot.

Anonymous said...

50 MPH Speed limit?? Let me guess. You weren't old enough to drive during the Carter administration, right? ( and you live on the east coast). The general population will just not go along with that.

Alternative fuels are only a valid option if they cost less than gasoline ( without subsidies) and be careful of unintended consquences. The move to ( heavily subsidized and required) ethanol has caused a rise in the price of food grains as farmers shift crops.

You cannot dictate to the maketplace what vehicles people will buy ( ie requireing Higher MPG ) The market will move likly in that direction, but not as a result of government fiat.

mike volpe said...

Let me jump in as well. It's too bad that I am not sure where everyone came from because I would be very curious to see if it is Conservatives that are now suggesting mandates and caps to force conservation.

I am for the most part a libertarian. If people are dying because folks drive too fast then I am all for lowering the speed limit. I am not for lowering the speed limit to conserve gas. I am certainly for encouraging such behavior. I am certainly against mandating MPG because as Ted pointed out that usually only has the effect of blowing up energy costs.

That's why I am for an aggressive cut in income, capital gains, and dividend taxes on any alternative fuel technology. That in fact would let the market do its work.

Anonymous said...

Jim C:
3 out of 4 of your proposals are government-imposed solutions which guarantees a 75% failure rate. There are very few things that government does well, and those are usually done as close to the affected locality as possible. In this case, you are suggesting imposing regulations at the Federal level that would have the simple impact of destroying the US economy, would possibly harm the environment, and would (hopefully) be declared unconstitutional.
(1) Drilling is certainly a good short-to-mid term solution.
(2) Phasing out " all oil-burning ground vehichles" in 15 years is simply impossible without unbearable economic impact - Fuel Cells and Hydrogen has been discussed to death elsewhere on this blog - simply put, unless there is a huge breakthrough, fuel cell vehichles are not practical for the majority of individual US drivers, and are completely out for commercial transportation (both tractor-trailers and trains). Propane and Natural Gas have most of the same issues as fuel cells. Electric has high initial purchase costs, good reliability, but high maintenance costs when it is needed, and very short range. There is also the problem of the hazardous materials disposal when the batteries are beyond recovery. Biodeisel has high particulate emissons and would suffer from some of the same issues we've discovered with Ethanol - like causing short supply of food production! Hybrids don't qualify because they still burn some petrol.
(3) A 50 MPH National Speed Limit (NSL) would be unenforced (or unenforcable) in many states - a sure sign of governmental foolishness is passing laws you know won't be obeyed. The actual petroleum savings of such a law would likely be minimal anyways - much more gas is burned by 5 million cars parked on the freeways each day stuck in traffic than would be saved by a NSL (which could actually contribute to more traffic)!
(4) What you are referring to is called a tarriff, not a tax, and it is already in place, although at a much lower rate than you suggest, and if it is used in such a way that it is intended to "fix" the price of gas, then it is simply a case of the government taking over what organized crime has been doing for centuries - price fixing. Let's leave organized crime to the experts! There is another unintended consequence to this suggestion (like most government-based "solutions") - the oil companies will just never sell to the gas stations at a rate that would allow them to set their prices below 3.00 / gallon, no matter what price they paid for it, thus you have just created state-sponsored price-gouging for an industry that is already under fire for it's non-competetive practices. Simply put, *Bad Idea*

Other than not being quite sure about the margin on oil futures (I'm not well-enough informed there to have a grounded opinion), I agree with Mike on this one. When are you running for office, Mike?

JL said...

You raise a good point about the strategic reserve however it isn't even necessary to release it. If the President were to simply say if oil prices are not below 50 dollars a barrel in one week I am going to release 100 million barrels of oil for several weeks. Speculators would sell at merely the prospect of this happening. Problem solved with only a threat.

Anonymous said...

I have a new site to shortcut on my desktop! This is fabulous! I'm not knowledgeable on economy as you guys all are, but I know we are fueling ideologies and cultures that cause strife and propogate stupidity by buying a commodity (oil) from ragheads at exhorbitant prices for something we COULD produce here at home. Go! T. Boone Pickens!

mike volpe said...

I appreciate the new fan and I agree with your sentiment, however I must object to the language used to characterize those in the Middle East. Bigotry and racism is intolerable no matter who it is directed at.

That said, I have taken a look at Pickens' plan. There are many things I like, however I am still missing how he intends to accomplish this. He is right that there are alternatives but how do we get those to market?