THE HELICOPTER PAGE

Helicopters: How They Work

Oil and what we need to do about it

(This was originally written in September of 2006. New supply issues have arisen now in May of 2007, and again we face record price increases. Nothing about the factuality of actual supply and demand has has changed, even though oil companies may be experiencing supply problems. Our oil reserves are still in the same basic place they were when this was written.)

The "threat" of disruptions in oil supply added $20 a barrel to the price of crude and as these "threats" diminished, oil prices have now fallen. But has any actual supply shortage ever existed?

Some say that the recent doubling of prices was set in motion four years ago with the 2002 strike by Venezuelan oil workers, which reduced that country's output by about 1 million barrels per day (bpd). The U.S. invasion of Iraq is blamed for another 1 million bpd reduction to an average 2 million. Reportedly, in 2004, China increased its consumption by nearly 1 million bpd to 7.4 million, while unrest in Nigeria took 500,000 bpd off the market. Then hurricanes Katrina and Rita knocked about 700,000 bpd off-line.

However, with all of that decrease in production, there was still plenty of oil to go around. There are 7-8 billion barrels of oil tied up worldwide in industry and government stocks (inventories) at any given time and only around 10 percent of this vast stockpile is typically available to the industry. So why the price increase? Prices at the pump rise and fall based on current comodities market pricing. Oil that is in the tank at the filling station was purchased and delivered well before the daily price was set. So what drives the price?

We like to blame the oil companies for the price increases, or that there are some covert dealings with politicians and oil companies to drive the price up. The key word in the first line of this document tells the entire story: "Threat".

The price of oil is comodities market driven. Oil companies, politicians, and third world nations have no control over price. Dictators can rattle sabres all day, but if the comodities market continues downward, then the price goes down. Oil is priced by fear of supply shortages, not by actual shortages. Speculators buy and sell oil on the comodities market at a daily price, and that daily price goes directly to the pump before one drop of the oil purchased that day goes to a refinery. How sad is that?

So we know the problem, what is the solution?

Take oil off the comodities market and have oil producing countries bid for annual contracts at fixed prices.

How would that work?

An annual bid process would be initiated by the Federal Government and open to all oil producing countries. Countries would submit sealed bids to the U.S. Government and the lowest bidder would win the annual contract. Prices would be reduced overall, as countries would compete with one another for the exclusive annual contract with the U.S.
The lowest price bidder gets the contract for the year, with a condition; Produce and deliver a certain amount or be fined for not meeting quota. Fine monies would be held in trust / reserve, so a country would not be able to back out and not pay fines. Interest bearing accounts would be acceptable, so money tied up in reserve could still give the oil producing country some return on the money held. Secondary contracts with the next lowest bidder country and other countries who agree to that same price, would be held pending, in the case of non-production from primary contracts. Fine money would be used to offset the cost of the secondary contracted price.

How do we get this to happen?

Two things have to happen:
1. Copy this and forward it via e-mail to people you know. We spend a lot of time and effort sending urban legend e-mails about fingers found in food, and money that will be supposedly given away by Microsoft. This is no urban legend and no hoax. It is however, a document with a viable suggestion on how to better our country.
2. Write your Congressional representitive via the U.S. Postal Service (USPS). Congressional Representitives have e-mail addresses but no one ever reads most of the e-mail. Especially if it is sent by someone outside their district. If you send a letter by USPS, there is a better chance that someone will read it. If enough people send the suggestion, we have a better chance that the suggestion will come to someone who is willing to make it happen.