The Proper Response to high Oil prices

We find increasing difficulty in explanation of the Oil Pricing mechanism, mainly because even the major Players misinterpret the meaning of the data. Oil exists within a Demand and Supply model like all other Products. It alters from the normal Demand/Supply Curves only in two factors: Demand has a elemental floor limit where Consumers has absolute need for Energy supply without Variation in the Short-term, and a relatively set ceiling on Supply in the Short-term. This means that Speculators can quickly influence Oil prices by buying and storage of Short-term Oil supply, quickly raising the Oil price. Those who insist that Speculation has little to do with the run-up in Oil prices lack understanding of the Process.

What Commentators on the Oil debacle, and Speculators themselves, fail to understand is the limitations of the Process. Oil Demand is maintained only through continuous Production as current levels. That Production can be generated only if Households repeat previous Spending patterns. The Repetition can only be held if the Sector percentages of Household Budgets hold to previous division. This means that Oil, and Energy in general, can enjoy a certain level of Price increase, but only of Short interval, before it begins to eat into the Household percentages devoted to alternate Spending. Production will be adversely affected, once other Household budget deployments are impacted. Production will drop, Oil Demand will decline, and Oil price should come down. The only impediment to this Market reconstruction are artificial Market interventions, whether Public or Private.

Government subsidies for Energy will create artificial Demand for Energy, which would not exist without Government intervention. Private Speculative action to withhold Oil supplies from the Market will be assisted by the inelastic floor of minimum Oil Demand, generating an artificial Price increase in the Energy sector. The interaction of the two Movements can often quadruple the effect of either in isolation. Still, the Government cannot subsidize the entire Production economy, which will start to shut down Production operations if the Energy prices get too high, and Speculators will endure decreasing Prices anyway. This is a natural Curative to excessive Government intervention or Speculation, though it is rather too harsh on most Households.

There is an alternative, saving Household budgets, and canceling Household Demand for Government subsidies for Energy. This is a Oil Storage tax per Day, on all Petroleum Products and Natural Gas. Storage beyond a 14 day limit would be assessed a $1.25 Tax per standard evaluative unit for the Product involved, determined solely by Bills of Lading. The Holders of Ownership will be held taxable. Actual Delivery Stations would be exempt from the Storage Tax, if the Petroleum products are held on site of Service. Such enjoined Movement of Product will facilitate the domestic Market, and negotiations with other Nations could incite similar taxation to the benefit of Consumers. lgl