Sunday, July 06, 2008

Oil

World oil consumption has increased dramatically over the past couple of years. At the same time, the dollar has fallen against all major currencies. The result is $145 a barrel oil, $4 a gallon gas and an increase in our national trade deficit. The last thing we need is to send more dollars over seas putting more pressure on the dollar. As the dollar falls, the price of oil increases. This has a spiraling downward affect on our economy.

The question is do we drill for oil in Anware, the costal areas, Gulf of Mexico and/or the mainland? Many say drilling will have no affect on the price of gas. Some say we should stop exporting Alaskan crude to Japan and use that oil in the US. What seems to escape many and nearly every politician is that oil is a commodity. Alaskan crude goes to Japan because it has higher sulfer content, is closer to Japan than mainland US, a contract to send half the oil to Japan for investing in the Alaskian Pipe Line and Canadian and Mexican oil is closer to the US mainland. This reduces shipping costs. The Alaskan oil sold to Japan brings in hard foreign currency or brings back our dollars from over seas, just to be sent to Canada or Mexico to buy oil. In essense, the shipping of Alaskan oil to Japan has no affect on the price of oil or US trade deficit.

If we were to increase oil production in the US, we would have a dramatic affect on our economy even though the price of gas would not fall. The affect would be a reduction in the US trade deficit. We would reduce our dollars flowing out of the US, thus reducing pressure on the dollar. A stronger dollar would reduce the price of oil in terms of dollars and thereby reduce the price of gas at the pump.

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