Nice Try, Sen. McCain

John McCain today credited President Bush with the plunge in oil prices over the last couple of weeks. He says the market is breathing easier because Bush has come down on the side of easing offshore drilling restrictions. I'm not impressed with the energy positions taken by either McCain or Barack Obama. But just to get this on the record before it takes off in the spiral of political commentary -- Bush's reversal of a presidential ban on coastal drilling has had no impact on the markets, nor is it likely to.

The price of oil is dropping for other reasons. The main one is that, contrary to popular opinion, there is no shortage of oil, and traders are starting to notice. The reason that prices have gone through the roof until now is that traders see that, if any emergency happens, such as a Katrina-type hurricane, there might be a shortage.

It's like a healthy person panicking over a lack of catastrophic illness insurance -- if she or he does contract a really serious condition, or is hit by a truck, there won't be enough money to pay the rent.

Traders are worried that, if there's a hurricane or war with Iran, there won't be enough oil. And they've pushed prices through $100 a barrel and on almost to $150 a barrel because of that trepidation.

Ed Morse, the oil contrarian over at Lehman Brothers whom I profiled this week in BusinessWeek, predicts that we are heading below $100 a barrel.

As for offshore drilling -- traders are looking to the medium term, a few years at most. None is looking as many as a decade ahead, the likely time horizon before any new oil from U.S. coastal waters would come to market.

Photo: mikelens
Rights: Creative Commons