Planning ahead would lower gas prices

Joseph Schillmoeller, Las Vegas

Saturday, March 26, 2011 | 2:04 a.m.

Regarding the Las Vegas Sun’s Thursday editorial, “Forging a new policy”:

Why are crude oil prices so high? Yes, there are external forces that have caused the price of crude oil to increase in the short term, but to say that domestic production isn’t the problem is ignoring the mistakes of the past. During the 2004 campaign, John Kerry told us that drilling in Alaska wasn’t the answer because such production wouldn’t hit the market for five years. That was seven years ago. Certainly, if the resources on the North Slope had been fully accessed we would not have $4 gas in our future. It’s called planning ahead.

As a futures trader, I can tell you that crude oil prices are determined on a “futures” market. The prices that crude oil are traded at today determine the prices at the pump tomorrow. Thus, if the speculators see there are greater stores of crude oil to be delivered in the future, the prices decline today. If current inventories are sufficient to cover demand until futures contracts are delivered, the downward price happens almost immediately.

Finally, part of the pricing increase we are seeing now is a result of the hostility of this administration toward exploration and production. Again, going back to the futures market, if the mind-set of the administration would veer toward the issuing of permits, granting access to drilling sites and letting current leases be used, the price of crude would begin to subside as speculators would take their short-term profits as they exit their long (prices going up) positions.

If the administration would loosen up the restraints it has placed on domestic production, we would see gas drop back to $3 a gallon or less. If not, $4 a gallon will be a memory a year from now.