The Corner

What Needs to Be Stopped Is “Stop Oil Speculation Now”

The Aircraft Owners and Pilots Association has just sent around a letter urging its members to join Al Gore, virtually all the major airlines, and who knows who else in supporting the hurriedly formed interest group, Stop Oil Speculation Now. One AOPA member, my friend George Savage–who who has started and sold a goodly number of companies, and therefore knows something about economics, as also about venture capital–wrote right back.

SOS Now proposes to address the fuel shortage caused by government intervention in the domestic energy market through more government intervention in the domestic energy market; on its face, hardly a recipe for success….

[H]igh prices are already encouraging conservation and alternative fuel development, but oil exploration can only increase where allowed by the government. The reality is that, despite $4 per gallon gasoline prices, development of enormous domestic pools of oil continues to be prevented by the very legislators so eager to demonize “speculators.” This political refusal to address a politically caused problem, not a normally functioning commodities market, is what deserves an AOPA headline.

Environmentalists like to promote the concept of “peak oil.” The idea is that global oil production will now decline in uninterrupted fashion in perpetuity. Obstructionist legislators are doing their part to make this a self-fulfilling prophecy. Futures trading driving up the price of oil is a signal, not the cause, of the success of this effort. An oil commodities trader purchases today a contract for future delivery of oil, betting that the contract can be sold at a profit sometime before delivery. In essence, the wager is that aggregate demand will increasingly outstrip aggregate supply: A pretty safe bet as long as China and India are industrializing while the United States, where much of the world’s untapped fossil fuel resides, is legally off limits to further development.

Self-interest is at work here. Politicians want money and political support from the green lobby. Green venture capitalists, like Kleiner Perkins general partner Al Gore, stand to make billions of dollars on “cleantech” investments, but only if oil prices continue to climb. A lot of venture portfolios are in trouble the day after Congress permits unfettered domestic oil exploration. And these folks are nothing if not well-connected.

I once again insist that AOPA withdraw its support for SOS now.

Self-interested? Al Gore? The sainted Al Gore?

Who’d a thunk it?

Peter Robinson — Peter M. Robinson is a research fellow at the Hoover Institution.

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