Defending oil speculators to the president

This is not speculation. This is the market reacting to the real and growing risk to crude oil supply. This is a valid fundamental reason for rising oil prices and serves an invaluable economic purpose. The market will move to ration supply and decrease demand to try to protect the economy and ensure that we will have enough oil should supply be cutoff. That's what markets need to do. They have to be defensive and anticipate. If they did not anticipate, order could be removed from the marketplace. It could lead to shortages and disruption of supply and wild price moves.

The President also has increased the price of oil by his actions taken after the Deep Water Horizon spill. As the Wall Street Journal reported, "When the Obama administration imposed a blanket moratorium on offshore drilling, much attention was paid to its impact on the local economy and individual companies. At the time, oil prices were around $85 a barrel and gasoline in the U.S. cost an average of $2.858 a gallon. Crude-oil and natural-gas production is expected to decline this year, according to estimates from the Department of Energy and private analysts. Offshore oil output, most of which comes from the Gulf, will average 1.55 million barrels a day this year, a 13% drop from 2010 estimates, according to U.S. Energy Information Administration figures. In 2011, the 10-month suspension in drilling activities and a slower permitting process will have resulted in the loss or, at least the delay, of 375,000 barrels of oil day, said energy consultancy Wood Mackenzie. That is roughly equivalent to one-third of the Libyan production that remains shut down because of political turmoil."

Mr. President, these actions have reduced supply and in turn raised prices. Speculators did not impose a moratorium, you did. At the same time you have thrown billions of dollars at alternative energies that may not impact demand and bring down prices for what some estimates say 10 to 25 years if ever, while ignoring the most promising source of energy and the answer to our energy woes and that is natural gas. If the President made natural gas job one and took some of that money that he threw at his political backers like GE that paid no income taxes for alternative fuels and put it towards infrastructure to switch our counties cars to natural gas we could cut our dependence on foreign oil by half in the next 5 to 10 years.

The other argument made by the misguided and uninformed critics of oil speculators is that the "long only funds" and ETF's have oil as a investment vehicle has distorted the price. Or that high frequency traders that trade in and out many times both long and short have driven up prices. Nothing could be further from the truth. Never before has the oil market been more liquid or transparent. Execution of trades is better than it has ever has been. Business, funds and speculators can now more effectively manage their risk better than at any time before in the history of the markets. Now the President and his political advisors are going to be tempted to meddle in the market place, potentially creating an environment that could lead to shortages of supply and hoarding. We saw what government manipulation of the oil market could do in the 1970's when we had gas lines and shortages that created a recession and put many people out of work and caused long-term pain for the US economy.

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