Today, Secretary of the Interior, Ken Salazar, announced that the Obama administration is reversing yet another Bush administration decision; this one granted leases for the exploration of oil-shale in some western states. A Washington DC think-tank, The Institute for Energy Research, believes there is more energy locked in western shale than all of the reserves in the Middle East.
Oil prices, like any commodity, are priced based on future value. Regardless of the political leanings of a given economist, to a man they understand that price is directly proportional to supply. We all remember the rise in oil prices that began in late 2007 and did not stop until the summer of 2008; But, you ask, what happened in the summer of 2008 that caused the precipitous drop of oil from almost $150 per barrel to the current level of under $35 per barrel?
On July 22nd of 2008, President Bush announced the beginning of the lease granting process I mention above. Immediately oil prices dropped and haven’t stopped. Coincidence?...I think not; but we shall see in the coming weeks how much damage this decision by the Obama administration will cause.
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This will for sure take away the 'supply'. However, it might be a moot point right now. It costs around $40 a barrel to extract oil from shale in Utah. As oil is going below this price, it is just about unprofitable to produce oil using this resource.
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