- - Tuesday, January 27, 2015

ANALYSIS/OPINION:

Americans are back in the automobile showrooms looking for big cars and SUVs, grooving on size, bells and whistles again. The falling price of gasoline has enabled customers to buy what they want, and what they want is often the Belchfire 8 they can afford to drive again (and trying with difficulty to maneuver through narrow streets in the older cities). The falling gasoline prices have put hundreds of dollars in the pockets of Americans, and that’s all to the good.

The radical environmentalists think it’s bad, of course, but in addition to the pleasure of driving new cars the falling gasoline prices have spared us lectures from the president about how everyone has to learn to inflate their tires properly. We get boasts from President Obama that he deserves the credit for the rising oil production and the falling price of gasoline. He’s actually the man who has put obstacles in the way of both.

This week he declared millions of acres of oil lands in Alaska off limits to exploration, rolling back the work of a previous president in clearing obstacles in the way of energy independence. Bipartisan majorities of both houses of Congress promised Alaska that the federal taking of oil lands would not happen without congressional approval. To add insult to injury, the president continues to block construction of the Keystone XL oil pipeline.

The president invites imaginative rumors, “viral on the Internet,” like the one yesterday that he had designated much of Alaska a “Wilderness Area” in recognition of the death of King Abdullah of Saudi Arabia. The rumor is only the work of a runaway imagination, of course, but it’s a rumor fed by the president’s decision, which will in fact eventually benefit Saudi Arabian oil producers. His assurance that energy independence for America is just around the corner sounds hollow.

The technological revolution that made the United States an energy giant again, coupled with the leveling of demand, has made worldwide supply over demand by something close to a million barrels a day. This in turn has reduced the price of a barrel of oil from more than $100 to about $40. This has hurt nations dependent on selling oil as well as the price of oil-company stock shares. This week, Russia recorded another drop in the value of the ruble and Russian bonds were rated as “junk” for the first time since the fall of communism. The economies of Venezuela and Iran are on the ropes. They’re still selling their oil, but at prices well below the cost of production, and they need hundred-dollar oil to survive.

The only country that can produce cheap oil and prosper is Saudi Arabia, which has a lot of it and is believed to be able to get it to market for $5 a barrel. American oil is produced for $40 a barrel. The Saudis obviously make a lot more money when they can sell their oil for $100, but they can afford to sell it for $5 to drive competitors out of the market, preserve their market share and restore the higher prices.

Anything that drives up prices in the United States or prevents American producers from exploiting their reserves ultimately plays to the favor of the Saudis. Canada’s cost to produce is considerably higher than in Saudi Arabia, too, and if the Keystone pipeline is not built their oil will be still more expensive to deliver to U.S. markets. If Americans can’t drill in Alaska, and the Alaskan pipeline is not built, that will hurt.

Saudi Arabia will regain its domination of the market, leaving everyone else to drive a Chevy Volt (without the long extension cord) and make only Iran, Russia and Venezuela happy. King Abdullah and his successor would be pleased.

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