why can't we stop buying crude oil from Canda for one week? Wouldn't that lower price on crude oil?
At present time we purchase 85% of crude oil from Canada. If we stop buying for one week and open our own reserves, wouldn’t that lower price of crude oil being imported? Like in any business, if people stop buying, the price comes down.
May 14th, 2010 at 5:05 pm
It would probably increase the price actually.
The problem isn’t obvious but here it is.
The price of oil is determined by two things, the spot price which is the price to buy it today and the forward and futures price. If you use the inventory oil today and then replenish it next week you are adding two risks to the economy. The first risk is that there could be a significant shock in the future that limits the ability to replenish the inventory, so prices have to be higher to cover the added risk. Second, although all you are doing is rearranging the delivery date, you are requiring excess pipeline capacity to exist to cover the issue, you are requiring the oil companies to act as storage facilities, which is risky, and you are requesting they disrupt their process. This is risky and would require substantial premiums to be paid in the futures and/or forward market to cover the added risk.
A bird in the hand is worth two in the bush, asking the bird to come back is risky.
Such an purposeful break in the natural equilibrium price would certainly increase it. The lowest natural price is the price it trades at without government or social manipulation.
May 14th, 2010 at 5:05 pm
If we did that then it would mean that for one week we would have less gas yet the demand for it would remain the same. That would drive the prices even higher.
As for the price of oil, stop buying for one week will not do much. We would need to stop buying for a year or more. Of course, there is no way we can go without oil for that long. A week is nothing. Also, the next week we would be buying extra to make up for the deficit.
May 14th, 2010 at 5:05 pm
If I am understanding your proposition correctly, you are suggesting using only reserves (which I thought were kept in case of emergency shortages) for one week, rather than buying Canadian crude?
That would mean that at the end of the week, our rate of consumption would remain the same, and Canada would have an extra week’s worth of supply. I guess this would lower the price, a small amount, for maybe a few weeks; but then equilibrium would be re-established and we would be right back where we are now.
You really want to lower prices, get everyone to drive more efficiently. Stop gunning it to get to red lights!
May 14th, 2010 at 5:05 pm
We can save gas if kids would start walking to school instead of taking buses. But the schools are much further from homes than they used to be.
We can save gas if we lived closer to work. But housing near work is usually more costly, or in high crime areas.
We can save gas if we shop at the nearby local stores instead of driving to the big shopping centers. But the nearby local stores are either out of business, or are too expensive, or do not have a good selection of merchandise.
May 14th, 2010 at 5:05 pm
stop buying crude from canada is fine the chinese will gladly take it, but the price sure wont go down.
May 14th, 2010 at 5:05 pm
Most of the oil we recieve in the US comes from Canada. If we stopped buying gas from Canada then fuel costs would actually rise.
If we stop buying crude oil from Canada that means we would have to import more gas from other places like the Middle East that would raise the price of gas because of higher transportation costs to ship the oil to the US.