Oil spill/Obama drilling/gas prices

By Joe Spear
Free Press Editor

The oil explosion/spill in the Gulf of Mexico appears to be much more serious than at first thought.

The latest Washington Post story is instructive. BP will try to "capture leaking oil" in huge 74-ton metal boxes being welded together right now. Idea is to capture oil and pump it to the surface.

They are also still trying to cap it with underwater submarines.

The problem they say this is like trying to do open heart surgery 5,000 feet below the surface.

I'm thinking this will have ramifications for future offshore drilling as it is turning out to be the biggest environmental disaster in U.S. history. The day oil washes up on the Florida beaches is the day you are going to have one hell of a political firestorm in D.C.

Though Obama has said the offshore policy he opened up last year would not change, but qualified that we must ensure safeguards are in place, so this doesn't happen again. There will be momentum from all sides to figure out safeguards for this kind of event and that will take a while.

It appears local gas prices are headed higher, but maybe more psychology than fundamental supply and demand. Here's the latest crude oil market commentary from the New York Mercantile Exchange.

"Oil firmed last week for several reasons unrelated to the normal drivers that have been acting as catalysts to help maintain the upward price trend. Global equities were lower while the US dollar was mostly firm...both negative for oil prices. In addition the current fundamentals could not have been much more bearish than they were last week as total commercial stocks of crude oil and refined products built by almost 13 million barrels. The combination of positive economic data coupled with concerns that the huge oil spill in the US Gulf of Mexico could impact imports was enough to send oil prices surging the second half of the week. WTI is now within a $1/bbl of the 2010 high made in early April while trading in a price range not seen since the first half of October, 2008. For all of the reasons I have discussed many times in this newsletter the price of oil is overvalued with little likelihood of a shortage anytime soon.

Make of that what you will.

But this disaster is going to occupy a lot of news cycles. Drilling another well could take months. Let's hope the containment method works as a temporary stopgap.