Analysts have found that investors spooked by the peak oil theory — the belief that crude production has topped out and is in decline — are partly behind the soaring oil prices. Someone should set them straight.

Blame part of $135-a-barrel oil on the increased demand in China and India, where the populations and economies are growing rapidly.

But the impact of those nations on crude prices in recent months is suspect. Global oil consumption grew 2% in the first quarter of this year over the first quarter of 2007, while production increased 2.5% over the same period. On a daily basis, roughly 85 million barrels of oil are consumed across the world, almost exactly matching the amount produced each day.

Production over the next two quarters is projected to continue rising (3.3% and 4.1%, according to estimates from Citigroup), while demand is expected to grow at a slower 1.6% pace over the next six months.

These data don't indicate higher prices, so something else is at work. Some analysts believe that investors who have swallowed the peak oil theory are pricing oil higher because they fear the world is running out of crude and permanent shortages are nigh. They shouldn't believe it.

The peak oil theory was popularized by Shell Oil geophysicist M. King Hubbert. He predicted in a 1956 paper that U.S. oil production would peak by the early 1970s and then decline sharply. The peak oilers — many of whom quietly want the world to run out of oil — say he was right. But they're missing some key points.

Yes, domestic output has peaked. But it peaked at a level 13% above what Hubbert predicted. And the peak wasn't followed by a falling-off-the-table decline. Output rose after a temporary slide.

U.S. production is trending down again, but it's not because there's no oil. It's due to shortsighted policies that prevent the industry from drilling for the almost 100 billion barrels of crude known to be under Alaska's Arctic National Wildlife Refuge and beneath the oceans just off of America's coasts. It's because politics and political correctness block the development of Big Sky state oil shale fields, where as much as 2 trillion barrels of crude, by some estimates, sit idle.

It's possible that rather than falling for the peak oil theory, investors simply are considering the reality that Congress has done nothing to increase crude output, and that continuing on that foolish path will indeed bring shortages.

The U.S., though, is not the only nation that pumps oil. World output is expected to rise from 85 million barrels a day today to 110 million barrels by 2015, according to the International Energy Agency.

Cambridge Energy Research Associates argues that the remaining global oil resource base is 3.74 trillion barrels. That's more than triple the peak oil estimate of 1.2 trillion barrels. CERA also has noted that output will not fall as quickly as peak oil alarmists think. Many studies put the decline rate at 8% a year, but after studying 811 separate oil fields, CERA believes the rate to be about half that — 4.5%.

By the way, this estimate doesn't even consider undiscovered and untapped oil fields. Nor are unconventional sources, such as shale oil, part of the equation.

As if he had peered into the spring of 2008 and seen the run-up in oil prices, Peter M. Jackson, CERA's director of oil industry activity, warned in 2006 that listening to the wrong voices would have consequences.

"The 'peak oil' argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future," he said.

The "theory causes confusion and can lead to inappropriate actions and turn attention away from the real issues," Jackson continued. "Oil is too critical to the global economy to allow fear to replace careful analysis about the very real challenges with delivering liquid fuels to meet the needs of growing economies."

So far, all five previous predictions that we were running out of oil have been wrong.

But one day the crude supply will effectively dry up. When it does, it won't happen overnight.

Energy: With the price of oil spiking above $127 a barrel, the search for scapegoats has begun. Some point to the Saudis, OPEC's No. 1 producer. Others blame the oil companies. We have a better candidate: Congress.

As President Bush traveled to Saudi Arabia to ask the House of Saud to open the oil spigots a bit wider, Congress showed once again how clueless it is when it comes to energy policy.

Underscoring its failure to grasp the nature of our current problems, the Senate Appropriations Committee on Friday refused to end its moratorium on oil shale development in Colorado.

"If we are really serious about reducing pain at the pump," Colorado's senior senator, Republican Wayne Allard, said, "this is a vote that would make a difference in people's lives." He's right.

But the shale proposal went down to defeat with Allard and 13 other Republican members in favor and 15 Democrats opposed. Once again, Democrats were on the wrong side, opting to keep oil in the ground and punish you with higher prices as a result.

This was no minor thing. Estimates put the amount of oil locked in shale in both Canada and the U.S. at more than 1 trillion barrels. Pulling out even a tenth of that would quadruple our current reserves.

This is the same Congress that refuses to allow drilling in Alaska's Arctic National Wildlife Refuge, which holds up to 20 billion barrels of crude, or offshore, where another 30 billion await.

Meanwhile, Brazil — which recently made a major oil discovery almost in sight of Rio's beaches — announced that it has leased 80% of the world's deep-sea offshore oil rigs. In other words, Brazil unlike the U.S., isn't dithering as prices soar. It's drilling.

If you think Congress' decision-making on energy couldn't get any worse, think again. While Bush was in Riyadh urging the Saudis to pump more oil, congressional Democrats were busy undercutting him, threatening to halt arms sales to our Mideast ally.

It was a politically peevish move with consequences both for U.S. energy security and the balance of power. If we don't sell arms to Saudi Arabia, Russia will. The result would be a loss of American leverage with the Saudis, who, like many, feel threatened by a nuclear Iran and the menace of al-Qaida.

At least Bush convinced the Saudis to boost output 300,000 barrels a day. That helps. But we still have to do more ourselves.

The U.S. uses about 21 million barrels of oil a day. But only 8 million come from our own sources. That leaves a 13-million-barrel-a-day deficit that, at $126 a barrel, will cost us $600 billion to plug this year. That's more than two-thirds of our total trade deficit.

Congress could reduce much of our oil shortfall by drilling for more on our own territory. This would lower prices and increase security. Yet, Congress seems dead set on doing the opposite.

Campaign '08: After the coldest April in 11 years, John McCain offers a "market friendly" approach to global warming — saying we "have a genius for adapting, solving problems." But shouldn't the problems be real?

McCain is the last politician we'd accuse of pandering. His honesty, steadfastness and independence have earned him the right to call his campaign the Straight Talk Express.

So we were disappointed when, at an Oregon wind turbine manufacturer on Monday, he seemed to embrace the shaky environmentalist position on global warming.

Saying the costs of our reliance on fossil fuels "have added up now in the atmosphere, in the oceans and all across the natural world," he proposed that by 2050, the U.S. should reduce CO2 emissions to a level 60% below that emitted in 1990. The question is, why?

Cold water was thrown on the climate-change disaster hypothesis by the National Climate Data Center's recent announcement that last month was the coldest April in more than a decade and the 29th coolest since record keeping began 114 years ago.

The average temperature was 1 degree cooler than the average April temperature of the entire 20th century.

A few weeks ago, as North America was emerging from one of its coldest and snowiest winters in decades, the climate center issued a statement saying that snow cover on the Eurasian land mass had been the most extensive ever recorded, and that this March had been only the 63rd warmest since 1895.

On April 24, the World Wildlife Fund published a study, based on last September's data, showing that Arctic ice had shrunk from 13 million square kilometers to just 3 million. What the WWF omitted was that by March the Arctic ice had recovered to 14 million square kilometers and that the ice cover around the Bering Strait and Alaska was at the highest level ever recorded.

In fact, the United States already leads the world in both energy efficiency per unit of GDP and control of CO2 emissions. We recently pointed out that, according to the 2008 Index of Leading Economic Indicators, U.S. emissions grew by 6.6% from 1997 to 2004, vs. 18% for the world as a whole and 21.1% for those nations that signed the Kyoto Protocol on greenhouse gases.

The U.S. reduced carbon emissions from natural gas and petroleum by 1.7% and 1.5% from 2005 to 2006 and coal emissions by 0.9%. Energy intensity (energy consumed per dollar of real GDP) fell more than 4% as total energy declined 0.9% and the U.S. economy expanded 3.3%.

We were pleased that McCain endorsed nuclear power as a pollution-free source of energy that can help us toward energy independence while reducing emissions. But the fact is that we will need more energy, not less, by 2050, from all sources. Both economic and technological growth will demand more.

The nation that first split the atom should first stop splitting hairs and revive nuclear power. We should also be taking more American oil out of our soil. We are the Saudi Arabia of coal. McCain is right about our ability to solve problems. The nation that put men on the moon can find a way to burn coal cleanly.

We definitely should not subsidize burning food in our gas tanks. McCain heroically opposed ethanol subsidies in 2000, running third in the Iowa caucuses, and he rightly opposes them today. And we have nothing against wind and solar, if they are economically competitive.

 

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We are setting at $3.65 a gallon for unleaded in Texas. Our imports are at an all time high and so are our oil prices. Ethanol has been a disaster. The dollar slide has been a disaster. The economy is contracting and the 3 remaining candidates (and most politicians) are talking of solving global warming. Global Warming if it exists can not be solved by governments or men. Goofy liberal government policies caused the energy crisis.

It’s a simple problem. We have oil and natural gas. It costs more to extract it than it did 30 years ago. But it’s here offshore the U.S., Alaska and on Federal lands. How much more pain can you stand before force our leaders to unleash the power and mite of the private sector to find, produce and refine the energy our economy needs?

Are you ready to tackle problems you can solve and let God handle the rest?

Energy: In their ongoing war against U.S. oil producers, Senate Democrats say they'll slap Big Oil with a windfall profits tax and take away $17 billion in tax breaks, among other punishments. This is an energy plan?

The planned 25% tax on windfall profits would be imposed on oil company earnings above what the Senate's wise members decided was "reasonable." Never mind that what's "reasonable" to one person might be punitive to another.

Senators also want to impose steep penalties on "price gouging" — despite the fact that some 17 separate studies have found it doesn't exist. The plan amounts to little more than an attempt to impose price controls — a socialist tool dressed up in populist garb.

Democrats hailed their new measure as an attack on "the root causes of high gas prices." That's one of the more laughable comments to emerge from the Senate in some time.

As any student who's taken Econ 101 at the local junior college can tell you, higher taxes don't encourage production; they discourage it. But Senate Democrats apparently played hooky the day taxes were discussed. They should at least have read the report from their own nonpartisan Congressional Research Service in 2006.

It shows that from 1980 to 1986, the last time the U.S. had a windfall profits tax on oil companies, the results were disappointing. As the chart shows, oil companies were hit hard by the tax. And in line with basic economic theory, they produced less oil, not more.

"Over the entire 1980-1986 period," the study said, "the (windfall profits tax) reduced domestic oil production from between 320 million barrels . . . and 1,268 million barrels."

The study also concluded: "The effect of reducing domestic oil production was to increase the level of imported oil."

At the time, the U.S. imported about 30% of its oil; today, we import about 60%. In part, that jump in oil dependency was due to the huge tax advantage we gave foreign oil companies in the 1980s — and to the continuing advantage we give them today by refusing to let our oil companies produce more crude from our own reserves.

The Democratic Party's bad energy policies in the 1970s hit poor Americans hardest, while delivering our energy future into the hands of OPEC's unelected poobahs. Now they want to do it again.

By the way, if they try to sell you on the idea that this will be a deficit-cutting move, don't believe it. Revenues from the windfall tax were far less than expected, because producers pumped less and nontaxed imports flooded our market. Compared with a forecast of $393 billion in windfall tax revenues from 1980 to 1988, Congress got a mere $80 billion.

In short, the windfall profits tax is a loser — on every level.

Likewise, the Senate's proposals for new penalties on "price gouging" are also fated to fail. This we know because when Jimmy Carter tried price controls, they resulted in massive shortages, blocklong lines at gas stations and, ultimately, gasoline rationing.

Perhaps the worst lie uttered in defense of price controls and higher taxes is that the less well-off will benefit. Don't believe it.

Even as Democrats mouth pieties about "bringing down the price of gasoline" for the poor, they will in fact be hitting working Americans with a big tax hike. "A windfall profits tax on big oil companies may sound good in theory," the nonpartisan Tax Foundation said last week, "but it will be paid by individuals." Big Oil doesn't pay the tax; you do.

House Speaker Nancy Pelosi criticized President Bush for offering "two ways of dealing with the energy crisis — drill and veto." But that's a far better plan than anything the Democrats have offered.

Tapping the hundreds of billions of barrels of oil that we have on land and offshore makes sense. It would add supply and lower the price. Every Democratic plan now on the board — every one — would do the opposite.

Barack Obama's Fuzzy Gas-Tax Math

Energy Policy: Barack Obama thinks a federal gas-tax holiday is a political ploy. But when he was in the Illinois Senate, he voted for a state holiday three times. These days, he prefers a holiday on gasoline production.

In an ad that aired before the Indiana and North Carolina primaries, candidate Obama said: "I'm here to tell you the truth. We could suspend the gas tax for six months, but that's not going to bring down gas prices long-term. You're gonna save about 25, 30 dollars, or half a tank of gas."

Speaking in Indianapolis before the ad was aired, Obama threw different numbers to a swooning crowd. "I know it polls well," he said, "but here's the truth: It would save the average family 30 bucks over the course of three months — $28, or more precisely, 30 cents a day — which is less than (a) cup of coffee at the 7-Eleven."

If that's his idea of math, we don't want him in charge of the federal budget or U.S. energy policy. So which is it — $30 over three months or over six? And he must think we don't drive very much.

The federal gas tax is 18.4 cents a gallon, so accepting his 30 cents a day figure, he must think we use a little more than a gallon and a half a day, including weekends, driving to our jobs, to the mall, to our kid's soccer games, even to the 7-Eleven.

If he's talking $30 over six months or 180 days, he's talking about 16 or 17 cents a day, which means he thinks the average American family uses less than a gallon a day.

Obama took a different view on the issue when he was an Illinois legislator, voting at least three times in favor of temporarily lifting the state's 5% sales tax on gasoline. The tax holiday was finally approved during a special session in June 2000, when Illinois motorists were furious that gas prices had just topped $2 a gallon in Chicago. Seems he was for a gas-tax moratorium before he was against it.

Today he opposes it because he thinks those evil oil companies will simply raise prices and pocket the 18.4 cents themselves. Apparently it's better for American consumers to outsource their money by paying Hugo Chavez $120 a barrel while we leave oil in the ground. That's a tax on consumers Obama doesn't itemize.

At least the oil companies would take that 18.4 cents and use it to find more oil in the few places Obama and his ilk have not placed off-limits. As we've noted, according to Ernst & Young, from 1992 to 2006 the U.S. oil industry spent $1.25 trillion on long-term investment vs. profits of $900 billion.

The man who had a Che Guevara poster in one of his campaign offices doesn't mind if Cuba, with Chinese assistance, explores for oil 45 miles off Florida while U.S companies are blocked from further Gulf of Mexico production.

Congress has also put off-limits vast areas in the Gulf, Alaska, the Outer Continental Shelf and elsewhere. The Arctic Wildlife Refuge contains more than 10 billion barrels of recoverable oil. Its output would equal 5% of current U.S. oil use, or enough to replace 15 years of imports from Saudi Arabia.

The Chukchi Sea, a vast area off northwestern Alaska, is estimated to contain 15 billion barrels of oil and 76 trillion cubic feet of natural gas. The Bakken Shale formation in North Dakota and Montana is conservatively estimated by the U.S. Geological Survey to contain 3.65 billion barrels of oil.

Get up Hillary, Get Up- Hit Him Again

BRAZIL SHOWS OIL NOT ALCOHOL IS KEY TO ENERGY INDEPENDENCE

In recent years, analysts have touted Brazil as an example the United States should follow on the path to "energy independence."  Brazil's success is often attributed to its thriving ethanol market, but this is at most only a small part of the story, says H. Sterling Burnett, a senior fellow with the National Center for Policy Analysis.

Consider:

• Brazil uses much less gasoline and diesel than the United States; while Brazil consumes 20 billion gallons of ethanol, gasoline and diesel combined each year, the United States uses 182 billion gallons a year, or over 9 times as much.
• Brazil's climate is suited to growing sugarcane, which requires half as much land as corn per gallon of ethanol produced and it provides 800 percent more energy than the fossil fuel used to make it.

While Brazil's embrace of ethanol doesn't have much to teach the United States, its policies with regard to domestic oil and gas production do provide an instructive lesson, says Burnett.  In the 1980s, despite huge subsidies Brazil began experiencing ethanol shortages.  As a result, it started promoting policies to boost domestic oil production.  Indeed, increased production and new oil discoveries played the biggest role in liberating Brazil from dependence on foreign energy.

For example:

• Brazil increased domestic crude oil production an average of more than 9 percent a year from 1980 to 2005, to 1.6 million barrels of oil per day.
• Most notably, in 2007, Brazil announced a huge oil discovery off its coast that could increase its oil reserves by 8 billion barrels, or 40 percent.
• By contrast, from 1980 to 2005, U.S. crude oil production fell about 2 percent a year or 40 percent overall.

Source: H. Sterling Burnett, "Brazil Shows Oil Not Alcohol Is Key to Energy Independence," KERA, May 7, 2008.

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