What do you do when an entire market is wrong? What do you do when it trades wrong, it's benchmarked wrong and it is unfair to the rest of the world?
I am talking about the worldwide market for oil, which, right now, is priced off of Brent crude. Right now the price is absurdly high and yet it controls the entire market.
Let's start with the supposition that the world is awash in oil. We are producing 3 million barrels per day more than we were just a couple of years ago courtesy of big finds in the Bakken shale in North Dakota and the Eagle Ford shale in Texas, which rival the Prudhoe Bay field in Alaska for the amount of recoverable oil. Yep, they are the biggest finds in almost 50 years. Canada has had a similar increase in capacity. Iraq's doubled its output to 3.2 million bpd from 1.6 million, also in a couple of years' time.
Yet at a time when every other commodity in the world is pretty much in free-fall, including aluminum, copper, iron ore, lead and nickel, oil won't come down. The price of Brent oil remains stubbornly high. That's just plain wrong.
What's going on? Two things. First, the Middle East sheiks can turn the spigot on or off when they want, as they have spare capacity. They have been very adept at keeping the price of Brent high by keeping oil off the market if they want to. But second, as go-to energy expert Dan Dicker explained in an online conversation with me, Brent's an atavistic benchmark. It's set off the rapidly declining oil fields in the North Sea.
Yes, the price we have to pay in this country, the price you pay at the pump, is actually being set by a worldwide market that's not really worldwide at all. It's just a snapshot of one field's output and that field is rapidly losing its relevance.
But because we do import 7.5 million barrels of crude a day, we're stuck with the Brent price for most of the country.
That makes no sense to me. But because we do not have an energy policy and our president has not approved the Keystone Pipeline and we are not harnessing our shale natural gas in any meaningful way, we are totally hostage to a benchmark that's keeping us from enjoying the fruits of our own bountiful resources.
Now, why do we tolerate this?
I think one reason is that it is our unstated policy, set in Washington, that fossil fuel use should not be encouraged. If we were to harvest what we have here in this continent the price of crude produced in North America would be set here and would probably be maybe $20 lower than the price of Brent. That would mean that the price you pay for gasoline would be 20% lower, which would encourage more use.
Another reason is that we seem to be OK with the status quo. Do you ever hear any one in Washington say it is time to bust the oil cartel in order to reduce the price of energy, create more jobs and become more secure as a nation? We, alone, are now the cause of being hostage to the Middle East sheiks and their dictatorships. We could change that if we had the political will and we were willing to accept natural gas as a bridge fuel to renewables when practicable. But we don't.
Last night we had Spectra Energy (SE) on. It's a remarkable company that has pipelines that crisscross the nation. CEO Greg Ebel made it clear that there is much more oil to be found still in this country and scores of years of natural gas. But it has meant nothing to date for the American worker in terms of lower price, because of the tyranny of Brent, or in terms of jobs, because Washington just turns a blind eye to the possibilities.
It's time for all of that to change and yet right now Ebel says there's only a 50-50 chance that Keystone, integral to the change, will be approved by the president. I say enough is enough. Let's take back control of the most important commodity in the world and let our country get the prosperity it deserves.