A coming oil glut? Part 2

As we can see from the above chart oil prices began a steep increase beginning in 2002 and while the observed data does not prove causation it certainly suggests a linkage between oil prices and the meltdown of 2008. Network television ran several stories wherein the the aggrieved subject had just purchased the dream home in the suburbs only to find the price of gasoline made driving to work a losing proposition yet practically no one pointed to rising oil prices as a danger to the economy. Instead higher gas prices could be offset by one more mindless Bush tax rebate. The mortgage meltdown is a scandal all to itself but let's sample the conventional wisdom of 2009 from none other than Federal Reserve Chairman Ben Bernanke.
2/27/08 – Testimony before the Senate Banking Committee
I expect there will be some failures [among smaller regional banks]… Among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system
4/2/08 – New York Times article after the collapse of Bear Stearns
“In separate comments, Mr. Bernanke went further than he had in the past, suggesting that the Fed would remain aggressive and vigilant to prevent a repetition of a collapse like that of Bear Stearns, though he said he saw no such problems on the horizon.”

6/10/08 – Remarks before a bankers’ conference in Chatham, Massachusetts
The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.
7/16/08 – Testimony before House Financial Services Committee
[Fannie Mae and Freddie Mac are] adequately capitalized. They are in no danger of failing… [However,] the weakness in market confidence is having real effects as their stock prices fall, and it’s difficult for them to raise capital.

Only in America! In sane universe Mr. Bernanke would be doing hard labor in Leavenworth until he was 90 for failing to see the obvious but instead of a well deserved banishment to NPR or MSNBC where he could do no further harm to the economy President Obama deemed this imbecile to be essential to his plan to remake America and appointed him to a second 6 year term.
Okay competent government helps but it is limited to what it can accomplish in the face of rising oil prices. It can embark, as the Obama administration did, on a horrendous concatenation of pipe dreams of solar panels, high speed rail systems, electric cars, hydrogen highways, and a promised 1 million green jobs but they amount to little more than wasted money and wasted verbiage.
Harold Hamm is regarded as the father of the Bakken Shale oil discovery. While the Bakken is now only the third largest producer of crude oil in 2009 in was viewed as spectacular success and a giant step toward energy independence and national economic well being. An enthusiastic Harold Hamm met with Obama and with much pride and glee told the President that in the Green River formation alone the federal government could earn enough oil and gas royalties to pay down the entire national debt. He says that Obama talked about new battery technology and said that the country would soon be able to move away from fossil fuels. You can't fix stupid! It must be one hell of a battery!
Even with a president antagonistic toward energy and bereft of common sense the country finds itself on the edge of energy independence. What does that portend. In the near term it probably means some pain as oil production runs up against refining capacity. As stated yesterday it is not legal to export crude oil but it is legal to export refined oil products such as gasoline and aviation fuel but if refining capacity is inadequate expect the near term price of oil to plummet stopping almost all new drilling.

Fortunately the future of natural gas is brighter. Anticipating a domestic shortage of natural gas companies began constructing import terminal which can modified into export facilities. The Department of Energy has already approved two facilities one in Texas and another in Louisiana and so far has not shown any of the bureaucratic truculence endemic to the Obama administration.
In the long term and assuming competent leadership the United States has it within its reach to pay down the national debt and once again achieve a positive balance of trade, something that has not existed since 1975. The number one import has been crude oil and going to an economy where exports exceed imports would strengthen the dollar. The availability of cheap energy should give the US a competitive edge in manufacturing especially those products that require large amounts of energy to produce.
In late 2008 crude oil prices spiked at $148 per barrel. While countries in the Middle East have lower production costs than the US the fracking revolution has given the US for the first time the ability to set a cap on oil prices. The magic number of $70 per barrel at which domestic drilling will stop is also the point at which it will begin should OPEC attempt to push prices higher.