Maybe you have heard this argument. The liberals say that even if we start drilling today, it won’t effect the price much because it will be absorbed by the world market. According to liberals, drilling today would have little effect on the price of oil.

This is the first time I have ever heard liberals discuss the “world market”. As with most new concepts, they are still getting their arms around it.

Yes there is a world market. But that market sets prices based on supply and demand just like any other market. Oil is a commodity like corn or iron. The price is also a function of future speculation.

In our current market, oil prices have become very volatile. They shot up to over $4 per gallon and within a couple of months have dropped by more than 8% . The price of gas has closely followed the price of crude oil (link). The reason for the volatility is low worldwide production capacity. Any shock to the supply could shift the market and drive the price up very quickly.

Knowing this, speculators are willing to pay a premium for oil. Some of this speculation is done just for profit, but others are hedging against rising oil prices. If you ran a trucking company with long term contracts, it would make sense for you to invest in oil futures as a hedge against an oil supply shock.

Take a look at where oil comes from: Russia, Saudi Arabia, Venezuela, Nigeria. Many of the world sources are in politically unstable areas. Russia just attacked a pipe line in Georgia. Saudi Arabia is run by Muslim zealots. Venezuela has nationalized its oil business. Nigeria regularly has terrorist attacks on oil production. It does not take a genius to figure out that the world supply can be easily disrupted.

If we were to drill off the coast of the United States we would be not only be increasing the supply of oil, we would be increasing the supply of oil from a region of stability. More stability means less speculation on high oil prices in the future. This will drive down the price of oil today…not in five years.

Drill Here…Drill Now…Pay Less

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