The Price of Oil

Mark S. McGrew

Oil prices went down today because the dollar is stronger. Oil prices went up today because of a storm in the Gulf of Mexico. Oil prices went up today as the stock market plunged 1/10 of 1%. Oil prices went down today because Mrs. Connor’s cat got stuck up in a tree.

	The Price of Oil
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The “Law of Supply and Demand” is a quaint euphemism that some people still believe in. Over the past 35 years we have heard one silly reason after another as to why oil prices rose or fell.

Many times the same reason has been used to explain the price going up or down. It may seem to make no sense, to someone who pays attention. It may seem to make perfect sense to someone who pays attention.

Oil is the single most important commodity on Earth. If oil stopped flowing, civilization would come to a screeching halt and we would all be left standing naked in a wilderness. Oil is not just to burn in cars.

There are thousands of everyday products we use every single day. In 1955 DuPont Chemicals had extracted 250,000 different chemicals from a lump of coal. It was only a matter of how hot you cooked it at what pressure. Oil is the same. Actually, it is insane to burn petroleum in cars and factories.

How much is a barrel of oil worth? In the 1990 Gulf War, we effectively paid over $150 a barrel. In the Iraq war we are currently paying over $300 a barrel. Add the total cost of this war, including medical care for our wounded soldiers, divide by the number of barrels produced in Iraq and you will see that it is over $300 per barrel. So, is that what oil is worth?

I think it is worth far more.

When we invaded Iraq, they were pumping a little over 2 million barrels a day. We shut that down and the price of oil stayed constant. This year, we put enough Iraqi wells back into production that Iraq is producing more than when it was dry. Oil prices rose. In May of this year, Saudi Arabia announced that they could not find enough buyers for its oil. The price rose.

An old part of the USSR, Georgia, just invaded Ossetia. Reports are that a major pipeline there, that delivers 1% of the world’s daily oil was bombed. Reports say that it wasn’t bombed. Reports say they don’t know if it was bombed. Fear. Speculation. Talks of a broader war.

Based on this news, oil should go up, but it went down.

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