World oil powerhouse, British Petroleum, announced this morning that it is temporarily shutting down the second largest domestic oil producing region of the U.S. due to corroded pipeline sections. As many as 16 different serious spots of corroded pipe have been verified in the pipe running from Prudhoe Bay to Valdez. The extent of the repairs and the time they will take to complete has yet to be assessed by the company. Not surprisingly, oil futures have spiked dramatically today on this news to just under $77 per barrel. Unfortunately this price is a new record. I suggest filling up your tank today.
While this move by BP is environmentally and fiscally prudent; it will undoubtedly cause noticeable disruptions in the supply of oil to our addicted nation. Prudhoe Bay supplies roughly 400,000 barrels of oil per day to the domestic market which represents about 8% of our daily demand. On top of that, Hurricanes Katrina and Rita are still responsible for more than 1.1 million barrels of missing production out of the Gulf of Mexico region. I would expect prices at the pump to rise quickly in reaction to this latest news perhaps by as much a dime or more per gallon.
The last thing our weakening economy needed was another energy price shock. However, many people on Wall Street were betting that the shock would come in the form of another deadly Atlantic hurricane just as we experienced last year. Further upside pressure on gasoline and energy prices weakening an already struggling consumer is definitely not something the Bush Administration or incumbent Congressional Republicans need heading into the summer recess and the rapidly approaching mid-term Congressional elections.
While prices have remained high in the wake of 2005 hurricane season and mounting geo-political tensions in the volatile Middle East have contributed to sustained record high prices for all energy commodities; it is now more evident than ever that the government needs to rethink VP Dick Cheney’s very secretive and now disastrous energy policy initiatives from 2002. Alternative energy solutions may be the only solution to a peaceful and once again productive U.S. and global economy.
It is also now evident that instead of competing head on with China and India for the finite commodity that is oil; our government should be heavily investing in the most promising of sustainable energy sources. Imagine how far ahead in the game we would be as a nation if instead of giving away billions of dollars in one-time tax cuts and plundering Iraq to the tune of hundreds of billions of U.S. taxpayer dollars; we invested this money in smarter ways. What has been the return on these investments? Unfortunately, the short-sightedness and greed of the current administration may have a higher pirce than just the opportunity cost of choosing a failed investment.
Much like the boom in technology spending was directly responsible for the roaring economy we had in the 1990s; I firmly believe that a similar type of investment in alternative energy, predominantly initiated by government investment, would have the same effect on our economy in the near term and for the future. We need a new leadership group in the economy and for the markets. Technology is now maturing rapidly and many traders and investors are having a tough time grappling with its cyclicality. The commoditization of tech was inevitable but unfortunately still hard for many to swallow. NASDAQ at 5000 will probably never be seen again by this generation. Alternative energy is our way out of this coming economic malaise….along with some new leadership in D.C. of course.