I'm Just Like Paris Hilton

Like Ms. Hilton, I have found a centrist position between two schools of thought on energy.

School of thought #1 is well represented by blog friend The Everyday Economist. In an interesting post, Hendrickson links to "an advanced copy of Paul Davidson’s article on oil speculation prior to its publication in the July/August issue of CHALLENGE." I recommend the entire post and linked article, but the EE gives us a synopsis:

As I have previously expressed, the rise in oil prices cannot be fully attributed to supply and demand because interest rates are at historically low levels (short-term real interest rates are negative). Thus there is little incentive to extract oil from the ground when the rate of interest is below the rate of growth in the price of oil.

Davidson's article recommends the use of the Strategic Petroleum Reserve (SPR) to break speculators, who have bid up the price beyond what Davidson says is supported by supply and demand.

I left a long comment on the EE site, but the short version is that I trust a vibrant international commodities market above government manipulation of supply with the SPR, and believe that a large and continuing addition to supply through drilling would have more impact on futures.

School of thought #2 is represented by one Lawrence Kudlow. Drill, drill, drill!

The drill, drill, drill political scenario coming out of Washington and spreading throughout the country is really helping Fed policy right now. Since President Bush launched his offensive to roll back the drilling moratorium, the oil price has dropped more than $30 from near $150 to below $120. The barrel price is actually down again today to around $118. In connection with the big oil drop, gold has fallen and the dollar has appreciated. Gas prices at the pump have come off about 25 cents. Presumably, headline inflation will moderate a bit next month.

So you might say drill, drill, drill along with reduced energy demands is lending a big helping hand to the Fed’s inflation worry.

Like Paris, I don't find these positions mutually exclusive. Let's open drilling both on the Outer Continental Shelf and in ANWR. Then, let's use the SPR to speed this new production to market, releasing a significant amount with the understanding that it will be refilled from new supply sources.

I'm pretty hot myself, huh bitches?

Oil and Energy Posted by jk at August 6, 2008 5:35 PM