July 29, 2008
The bill we have on the floor deals with speculation. It’s been denounced by virtually every economist that it’s relatively worthless.
Let me talk about markets and how markets react. Markets are built on expectations. People are buying long-term contracts for oil with the expectation that the price of oil will keep going up. If you change the expectation, you will change the price. We have seen that. It may be coincidental, but when President Bush announced that he was removing the executive branch moratorium on drilling on the outer continental shelf the price of oil was close to $145 dollars a barrel. Today it is close to $123. What’s happened?
I think expectations have changed. Those who buy long-term contracts have been listening to what we’re saying on the floor in the United States Senate, listening to the president of the United States and they’re saying, “America is serious about increasing American production. If America increases American production the price will start to come down as the supply starts to increase. So we better not be quite so anxious to buy long term contracts at $145 a barrel.”
As I said, today a barrel of oil is at $123. If we dash the hopes of those who expect that America will increase its production, we virtually guarantee that the price will go back up. We virtually guarantee that the speculators or investors or purchasers- call them what you will- will come to the inevitable conclusion that if America is not going to increase it’s production there is not hope for increased production. Therefore, let’s make the long-term contract. Let’s buy the most oil we can buy. Let’s make long-term purchases because we’re short on oil and prices are going to go up.
Understand America used to be the largest producer of oil in the world. Around the 1970s that began to change. We used to have the capacity to set the world price of oil because we built up a new well in east Texas whenever it was necessary. People who were buying oil contracts knew that if the supply ever got tight, America could increase it. Pricing power moved from American shores over to Saudi Arabia in the 1970s and has been there ever since. We have fallen from the number one producer of oil in the world to number three. Number one is Saudi Arabia, number two is Russia and we’re number three. We’re in danger of falling even further in rank if we maintain the status quo which says, you can only produce oil on the acres that are already leased.
Eighty-five percent of the oil available to us on the outer continental shelf has been closed since 1981 for any exploration. President Bush has announced that moratorium is over as far as the executive branch is concerned. Now Congress needs to make it clear that it is over as far as the legislative branch is concerned. That’s what we’re asking for. If the Congress follows the lead of the president I think it will send the strongest possible signal that America’s back in the game. If the Saudi’s are not going to be able to increase their production, if the Russians are not willing to increase their production, America will increase it’s production.
As Senator Hutchinson said, long-term we want to wean ourselves from the level of dependence we have on oil and gas, but that future is still 20 years away. We need to build a bridge to that future. The bridge to the future of heavier reliance on renewable sources is going to be built out of fossil fuels. Let’s not kid ourselves that we can shut down the production of oil and gas today and automatically all be replaced by solar and wind tomorrow. That’s at least 20 years away. We need to build a bridge and America needs to get back in the game now.