Oil Prices Up: Media Should Look at Egypt, Bernanke and Obama
It can be very entertaining – though at the same time a bit bewildering and depressing – to observe the media trying to explain price changes in the market. And then there are the misguided policies from elected officials and their appointees. It’s all evident in oil prices.
Over the past few weeks, the benchmark U.S. oil price (Cushing, OK, WTI spot price) increased by $10-$12 a barrel, closing at about $106 on July 15.
Why the increase?
Well, a July 11 Wall Street Journal piece emphasized the “easing of bottlenecks in the Midwest,” which “are enabling refiners to ramp up operations and sate the globe’s thirst for fuel.”
Um, wouldn’t that work against higher prices?
The story goes on to say that an unexpected drop on U.S. crude oil stocks have pushed up the price. But again, in the same article, it is pointed out, “Several recently opened pipelines and rail routes are helping oil companies tap into the huge pool of supplies that were previously trapped in the middle of the country.” So, new infrastructure is allowing increased U.S. oil production to reach the market. Again, not sure how this is a source of the increase in oil prices? Did the expanded infrastructure suddenly appear, like manna falling from heaven?
In addition, the International Energy Agency projected last week that oil production from non-OPEC nations would increase and run ahead of oil demand in 2014. Toss into the mix the economic slowdown in China. All of this would work against price increases.
Why have oil prices moved up of late, and remained high for an extended period given the assorted factors expanding supply and limiting demand?
On the recent price move up, the big issue is ramped up uncertainty via unrest in the Middle East/Northern Africa, as exhibited most clearly of late by the happenings in Egypt, especially given the importance of Egypt’s Suez Canal and the Suez-Mediterranean pipeline. But the Arab Spring over the last few years has served to undergird oil prices, by injecting an uncertainty premium.
Also on the longer term price issue, the multi-year, loose money policies of Ben Bernanke’s Federal Reserve have created uncertainty regarding the dollar, therefore helping to boost the dollar price of oil.
Meanwhile, the Obama administration has worked for price uncertainty, and against major positives that have developed in the market. Namely, Obama’s step back from the Middle East/North Africa region has created a void of stability, and helped to increase the uncertainty factor. At the same time, the private sector in recent years has dramatically changed the global energy equation by opening up U.S. production of both oil and natural gas from shale formations. But the Obama administration has worked against domestic production, via continued prohibitions on exploration and development on federal lands and offshore, and the EPA’s general push against carbon-based energy.
It’s a classic case of why markets work, and government does not. Private sector players innovate, invest and respond to market price and profit signals, while government creates obstacles due to misguided, costly policymaking.
Raymond J. Keating is chief economist for a national small business organization; a weekly columnist with Long Island Business News; a former Newsday weekly columnist; and an adjunct professor in the MBA program at the Townsend School of Business at Dowling College.
Author of numerous books, his latest business and policy books are “Chuck” vs. the Business World: Business Tips on TV and Unleashing Small Business Through IP: Protecting Intellectual Property, Driving Entrepreneurship. Keating also is a novelist, penning a series of Pastor Stephen Grant thrillers.
His articles have appeared in a wide range of additional periodicals, including The New York Times, The Wall Street Journal, The Washington Post, New York Post, Los Angeles Daily News, The Boston Globe, National Review, The Washington Times, Investor’s Business Daily, New York Daily News, Detroit Free Press, Chicago Tribune, Providence Journal Bulletin, and Cincinnati Enquirer.
Trending Now on Affluent Christian Investor
Sorry. No data so far.
The Affluent Mix
The Era Of No Consequences January 14, 2021 | Frank Vernuccio

Income And Well-Being January 14, 2021 | Jim Huntzinger

How Companies Pay Shareholders: Buybacks Don’t Subtract From Wages... January 14, 2021 | Jerry Bowyer

Taper Nervous Breakdown January 14, 2021 | Michael Pento

China, Democrats, And Donald Trump January 8, 2021 | Frank Vernuccio

Biochemical Engineer Ivor Cummins Discussing “The Rosetta Stone Of Modern ... January 7, 2021 | Jerry Bowyer

Hillbilly Elegy Economics Lesson: Culture Matters... January 7, 2021 | Roger McKinney

Take The Under On 2021 GDP January 7, 2021 | Michael Pento

How Companies Pay Shareholders: Buybacks Are Not A Giveaway... January 7, 2021 | Jerry Bowyer

The History Of Income Inequality And Popping Economic Bubbles... January 7, 2021 | Jim Huntzinger

Diseases Of Modernity: What Do They Have In Common?... December 22, 2020 | Jerry Bowyer

Mobocracy December 22, 2020 | Frank Vernuccio

Beware Market Land Mines: Stimulus, Vaccine Failure, Interest Rates... December 22, 2020 | Michael Pento

Following Classical Economics December 22, 2020 | Jim Huntzinger

What Prostate Cancer Taught Me About Our Fiscal And Physical Health Code Blue... December 22, 2020 | Kevin Cullis

The War Of The Worlds December 22, 2020 | Terry Applegate

Cuomo’s Partisan Authoritarianism Struck Down By SCOTUS... December 15, 2020 | Frank Vernuccio

Socialism: The Road-To-Hell Paving Company... December 15, 2020 | Roger McKinney

Amazon And The Los Angeles Lakers Wreck The Wage-Stagnation Narrative... December 15, 2020 | John Tamny

Capital Abounds, And It Needs A Place To Go... December 15, 2020 | David Bahnsen

How Companies Pay Shareholders: Buybacks Are Not A Giveaway... December 15, 2020 | Jerry Bowyer

Signs That Biden Will Be Soft On Iran December 10, 2020 | Frank Vernuccio

Join the conversation!
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse.