Oil

January 29, 2015

Hello everybody out there in farm country. This radio commentary is brought to you by Monsanto, and John Deere. They are all friends, supporters, and allies of a healthy farm economy and prosperous rural America. Thank you.

And now for today’s commentary—

The biggest story of 2014 is not the turmoil in the Middle East, not about China, or Islamic Terrorism. The story is oil. Go to the farm in Illinois and you can fill up your car for less than $2 per gallon. I’m looking forward to cheaper nitrogen fertilizer and diesel fuel. Six months ago, prices were pushing towards $4 per gallon for gasoline. Just back in June, we were told that the risk was rising prices. Now, the question is, “How low will prices go?”

For eight years, we lived with historically high energy prices. We have spent billions of dollars in the Middle East. How many lives have been sacrificed? Part of the reason has been to protect our energy supply. It’s time to reevaluate that concern. We are now producing more oil than any of those Middle East countries, except Saudi Arabia. We are energy secure.

Saudi Arabia and the other members of the Organization of Petroleum Exporting Countries (OPEC) decided to end their practice of holding prices up by limiting production. It doesn’t work anymore. New technology in drilling has resulted in an explosion in oil. OPEC’s plan now is to let the market work. Prices will find a bottom that will discourage investment in new production.

The collapse in oil prices reminds the oil-producing countries and companies about the history of oil. Oil was cheap from 1986 to 2004 (almost 20 years). In 1998, a barrel of oil cost under $10. Last June, it was over $100.

Market prices are driven by supply and demand. It seems like just yesterday that corn was worth $8 per bushel. Now, it is worth half that. You know they always say; “the best cure for high prices is high prices. The cure for low prices is low prices.”

The positive take-away from the big oil boon is:

1. We are no longer as dependent on other countries for our energy.

2. The low energy prices will give our consumers more money to spend.

The countries that will suffer are those that rely on oil and gas for their income – Middle East, Russia, Venezuela.

If you would like to review my radio shows going back more than 20 years, just go on-line to www.johnblockreports.com. Have a great weekend.

Until next week, I am John Block in Washington, D.C.