Fuel Costs Climbing - President Has The Key

As fuel prices continue to increase and the memory of the summer of 2008 comes into focus for our country, let's hope the past repeats itself - or is at least given a chance.


Source: http://www.eia.doe.gov/


The per barrel oil price peaked in July of 2008, right along with the national average of diesel fuel. While we are far from the pinnacle of both, we are rapidly on course to meet them soon. The difference should be the painful memory of filling up to get to work at the expense of not eating or not paying bills.  All this while hearing daily conversations and declarations that it was a defining moment in the behaviors and policies of not just Americans, but people through-out the world.

Apocalyptic banter of a greedy President lining the pockets of his cronies filled the airways along with talk of new technologies taking over if the cost of fuel continued to increase (electric cars, wind and solar power, hydrogen powered cars... etc).

In the end it is just a memory to most.  But why? What happened? What turned the tide?

Malcom Gladwell is the author of The Tipping Point - How Little Things Can Make a Big Difference. This book defines and demonstrates the strange phenomenon of everyday struggles that change in an instant.
Another way to analogize this would be to remember the saying, "the straw that broke the camels back".  With that last straw, the camel comes tumbling down.

The average camel can haul a load up to 1,000 lbs. So the last straw doesn't consider everything it took to get to 1,000 lbs, but rather the final ounce that made up the final straw that broke the camels back.

The tipping point in July of 2008 should lend some insight into the solution of the skyrocketing costs today. It is commonly understood that the price per barrel of oil really costs nothing close to the cost the market puts on it (the cost as reported in the media is actually a futures cost, which means it is speculation and largely determined by market makers that bet on paper - not determined by an actual market consumer that takes possession of said barrel of oil). In fact, and to further demonstrate that the market cost isn't anywhere near the true cost, I recently spoke with the owner of an oil field firm that does the drilling and barreling.  He told me that it actually costs him about $13 per barrel to get the crude oil out of the ground. That's a far cry from the $100 a barrel price it's at right now.  He wondered who was actually pocketing the rest.

Source: http://www.eia.doe.gov/

Now that we know there is a difference in the actual and market cost of a barrel of crude, let's go back to 2008 and look at the tipping point that led to relief back then.

A related article in the New York Times was published on July 14, 2008. "Bush Lifts Drilling Moratorium, Prodding Congress" read the headline.  "President Bush lifted a presidential moratorium on drilling for oil and natural gas on the Outer Continental Shelf on Monday, hoping to prod Congress to act to clear the way for exploration along the country’s coastline in response to soaring energy prices."

The article continued in a tone of "good try but it won't work" as demonstrated by declaring, "By itself, the move will have little impact" due to the 1982 ban on exploration that is still in place.


While there was no action by Congress with respect to exploration, the true action occurred in the markets.  It was this event (lifting the ban on drilling) that was the tipping point.  July 14th was the peak of both the cost per barrel of crude oil and the national average cost of diesel fuel (source: http://www.eia.doe.gov/).  It was a signal to the market makers and the foreign oil producers as well as to all of the American people that we all had enough of it, and President Bush was going to bring relief.

Could it really be that simple - lifting a moratorium on drilling?  While it is reported that the difference that lifted moratorium made to the total supply of oil was minuscule, what was not so small was the effect it had on the rest of the world.  That was the tipping point.  That was the beginning of the end of high fuel prices.

If it really is as easy as lifting a ban on drilling, shouldn't Obama give it the ol' college try and lift his own moratorium on drilling in the Gulf, and sooner rather than later?