CENTRAL VIEW for Monday, June 16, 2008

Gasoline: Two ways to drop prices

If you’ve been watching how Congress is reacting to gasoline at over $4.00-per-gallon then you know the Democrats killed a Republican effort to permit oil exploration in the 85-percent of U.S. coastal waters that are currently off-limits. You also know the Republicans stopped a Democrat effort to impose an excess-profits tax on the U.S. oil companies.

As for off-shore oil exploration and recovery, environmentally “super-green” Norway is a world leader with regard to off-shore oil rigs. Norway could not care less about oil from the Middle East. But, quite understandably, some Americans with beach-front homes or luxury, high-rise condos do not want to stare at oil rigs. But what if the oil rigs were beyond the horizon and out-of-sight?

Here’s the formula for finding the distance out to the true horizon. You take the square root of how high your “eye” is above the ground or above your boat’s waterline. For example, let’s say your “eye” is nine feet above the surface. The square root of nine is three. Multiply three times 1.17 (the “constant” many sailors know) and the result gives you the distance to the horizon or, in this case, 3.5 nautical miles.

But let’s say you live in a beach-front penthouse 150 feet above the sand. Let’s say a floating oil rig is 150 high. In order for you and the oil rig not to see each other, how far out must the oil rig be anchored? Work the formula twice and add the solutions. Ergo: the oil rig must be 28.6 nautical miles from the coastline.

Hurricane Katrina did not spill a single drop of oil from the hundreds of oil rigs off the coast of Louisiana. Therefore, rational people might conclude that placing oil rigs at least 28.6 nautical miles off shore would be an environmentally-safe and esthetically-acceptable method of reducing our dependence on foreign oil. But since Congress is the primary author of the oil mess, we must not be dealing with rational people. As the late, great, comedian Will Rogers said, “I do not make jokes. I just watch the government and report the facts.”

Here’s a quick way to drop gasoline prices by about 20-cents-per-gallon. Require oil futures speculators to post a bond that they have the ability to actually take delivery of the oil they have contracted to buy. Because only our coastal oil refineries have the means to accept a tanker load of oil, the speculators would be driven out of the U.S oil market.

Hold the phone. Shouldn’t cattle traders be forced to post a bond that they can take delivery of cattle? Not really. For example, when Hillary Rodham Clinton was First Lady of Arkansas, she engaged James Blair and “Red” Bone (a World Series of Poker semifinalist) to invest in cattle futures on her behalf. If Hillary’s helpers had not sold Hillary’s cattle before their contracted-for delivery dates, cattle trucks could have deposited cattle on the lawn of the Arkansas Governor’s Mansion.

The difference between Hillary as a cattle futures trader and the foreign-oil future speculators is that Hillary could have found a way to accept delivery. She could have leased a local feed lot. But she wasn’t about to watch cattle pooping on her lawn or listen to them mooing all night. So, the contracts were sold before their delivery dates. Her helpers got their commissions and Hillary added $100,000 to Chelsea’s college fund. All perfectly legal.

Sometimes, foreign-oil speculators pay tanker captains to steam slowly or faster in anticipation of selling the load at a higher price. Oil contracts may be sold multiple times before an oil-tanker reaches our shores. Each speculator in the chain artificially increases the price of oil.

By driving out the foreign-oil speculators, the U.S.-owned refineries could buy the oil at its true supply-and-demand price. That fixed, the next step is to increase domestic oil production. Ancient Chinese proverb: “The longest journey begins with a single step.”

Syndicated columnist and featured commentator for USA Today, William Hamilton, is a sailing instructor who worked on Wall Street for Lehman Brothers. Prior to that, Dr. Hamilton studied government and politics at Harvard’s JFK School of Government.

©2008. William Hamilton.

Dr. Hamilton can be contacted at:

Email: william@central-view.com