Sunday Oil Investor's Business

From IBD,
"One of the glories of a capitalist system is that price signals are allowed to work. When the price for a good rises, that means it's in scarce supply. When the price falls, it's relatively abundant. This signals to users and producers they must change their behavior."

For consumers, higher prices mean finding alternate ways to do with less. For producers, they mean finding ways to produce more. The confluence of these two forces usually results in lower prices to meet equilibrium.

"This is what's happening now with oil." As for oil companies, they're drilling more, "world oil output has jumped by 11%, or 8.5 million barrels a day, since 2002, to 83 million barrels a day."

"Fueled by the high prices, new sources of oil are being discovered. They include the 33-billion-barrel bonanza recently found off Brazil's coast and other huge finds in the Caribbean and Asia.

The U.S. itself has 656 trillion cubic feet of natural gas and 112 billion barrels of oil on federal lands alone — there for the taking if only Congress would allow it.

As the American Petroleum Institute recently noted, "an estimated 4,577 (U.S.) oil wells were completed in the first quarter of 2008, up 12%" from last year and the highest rate since 1986. U.S. oil companies are going back to tapped-out wells and pumping oil that wasn't economically recoverable at $25 a barrel but is at $100."

-Monday's Edition of Investor's Business Daily, Editorials and Opinions.

MPM