Friday, May 23, 2008

Strange behavior

Forbes (May 19) includes "Strange Behavior ... With oil hitting $120, [how sweet it was], there are some things about energy markets that don't make much sense. Or maybe they do."

The piece mentiones a number of self-inflicted wounds. Here is just one (not mentioned in the Congress' inquisition of oil suppliers):
"The U.S. is on track to import more than $400 billion in
crude oil and gasoline this year, up from $300 billion last year.
Incredibly, some of the easiest and cheapest untapped oil out there lies right
here at home. A small private oil company recently drilled a field in
Colorado's Denver-Jewelsburg basin. It found a good supply of medium-grade
crude oil but had to shut the well for lack of a pipeline to get the oil to
market. 'We would sell for $30 if we could find a buyer,' says the chief
financial officer. How can that be? Paul MacAvoy, economics
professor emeritus at Yale University, explains that the rates pipeline
companies can charge to move crude oil are capped by the Federal Energy
Regulatory Commission. Why should they build more pipelines?"