Oil! The subject of great debate over many years.
Talks range from subjects such as prices, supply, demand, consumption, and many others. The latest talk today is the plunge in price of one barrel of oil in the previous six months.
Oil has declined from $98.22 to as low as $45.93. This has created havoc among oil producers, drilling and manufacturing companies. A few months back, this was considered a positive market correction that would ultimately reduce oil prices to more reasonable levels.
Today, the downward drift is inevitable given that supply overruns demand. The price keeps dropping, and companies are changing forecasts of capital expenditures for the upcoming quarters and year-end numbers.
No one seems to be backing down on oil production levels. Big players, such as Saudi Arabia and Russia, are producing as much as the United States. OPEC has been debating action plans for months and few decisions have been made against flooding the market with more oil.
The recent talk in the United States has come to jobs. John Hess comments in the Wall Street Journal, how an old tradition from the 1970s is causing more harm than good, and it should be revoked.
|The Oil Export Ban: A Relic of the 1970s – WSJ
In The Wall Street Journal, John Hess argues that lifting it would help keep rigs running and workers working—and it would even lower gas prices at the pump.
I personally disagree with him. This is why.
Mr. Hess states that since oil prices have decreased more than 50% and crude oil reserves have skyrocketed from 350 million barrels last year versus 480 million today, the United States should revoke an antiquated rule that prohibits the lower 48 states to export oil.
The export ban was placed around the 1970s, when the Arab oil embargo against the U.S. was in place. This ban involves price control and rationing. According to some facts stated by him and other institutions in the article, “The U.S. exports 3.5 million barrels per day, and the further control of exports not only affects the jobs but the U.S economy as well. Operating rigs have decreased from 1900 in September to a little over 950. The oil and gas industry has lost over 75,000 jobs worldwide.”
Mr. Hess says that lifting this ban, will “improve economic growth, wages, employment, trade and overall welfare.”
Why should we not lift the ban? Here is why:
There is an interesting article by Charlie Munger on the subject of natural resources in the U.S., mainly U.S. oil, “Should we consume oil first or save it for last”.
The citizens of this country were sold the idea of energy independence as the next great economic success of this nation. Well, this might not necessarily be the best idea out there. Like Charlie says, if 100 years ago we would have been invested in the idea of energy independence, we would have started drilling and consuming every possible resource available back then.
We know, all natural resources have a limited life. The earlier we start destroying these resources, the less reserves we will have within our borders, hence, less energy independence. Prices for oil will increase.
The world’s oil reserve will get worse as time passes. This is not a premonition or prophecy, this is reality. As mentioned before, anything with limited resources will ultimately be consumed. When that happens, we would not want to be in a position in which we suffer due to the lack of resources available.
Charlie Munger similarly expresses the idea behind this reasoning:
“We have a brain block on this issue. We should behave now to do on purpose what we did by accident. We conserved some of our oil because we were not aggressive enough and smart enough to get it out faster, that was accidentally doing the right thing. Now we should do on purpose what we formally did by accident. We should conserve and subsidize new forms of energy…we should suppose these big national grids.”
In Mr. Hess’s defense, he is promoting the best action plan to enhance the performance of his company, but not necessarily, the best strategy for the country.