One of the major issues in this year's election is going to be oil prices and what to do about them. Unfortunately for the Democrats, whose mantra is that George W. Bush has created high oil prices and could lower them again if he wanted to, the economic world actually exists, independently of Democrat rhetoric. In the economic world, then, is where we need to search for analysis of why oil prices are high and might well continue to rise.

In the economic world, oil prices are climbing because demand is growing rapidly at the same time that oil supply is declining. As many publications have reported these past few weeks, oil production from non-OPEC countries is declining at an ever faster rate. Mdexico, Norway, and our own North Slope field will likely run dry within the decade. That would not matter except that new oil production has been slow to develop despite the doubling of oil's barrel price since 2005. Why so? Why aren't thousands of oil exploration companies popping up overnight to go out in search of this liquid license to print money?

Part of the answer is one that George W. Bush stated correctly in yesterday's press conference: Congress is loathe to permit further drilling in North Alaska. The rest of the answer is the same: counties all over the world have been reluctant to approve increased oil exploration and production. Even OPEC, which has agreed to increase its output of crude, has set a production limit, one which significantly falls short of expected demand.
Second, the vast new oil deposits recently found way off-shore under the deep ocean will take 10, 15, 20 years to bring on line. For some deep fields, the technology to extract the oil barely exists as of now, even though sustained sky-high oil prices will surely hasten the day. Lastly, nations everywhere have been unwilling to approve new oil refineries. It doesn't matter much how much you increase production of crude if you can't get the increased barrels refined!

In all of this, the President of the United States plays only an observer's role, with the exception of our own domestic production and refining. On that score President Bush has done all the right things -- only to be blocked by the Democrats in Congress. He has called for new oil drilling in Alaska and elsewhere, for alternative fuel research, and for conservation. He has of course not called for an excess profits tax on oil companies, something that the Democrats want. And what about an exces profits tax?

The Democrats talk endlessly of oil profiteering without a snippet of sense in a single word. Here for their edification -- assuming you can edify a Democrat, not a sure thing at all -- is the Real Deal in oil:

1.Oil companies are Liquidating Companies. They sell off their assets.

2.Oil companies not seeking to liquidate completely must REPLACE their assets.

3.Today the oil that companies sell at $ 3.50 a gallon was discovered years ago at 5 cents to 20 cents a gallon. That's a huge profit, yes. But those gallons must now be REPLACED at $ 3.50 a gallon PLUS the cost of exploration!

4.The oil companies thus face years and years of LOSSES when they go to sell their newly discovered, extremely expensive oil.

So much for excess profits. So much for the Democrats.

I look forward to John McCain's presidency, with respect to this issue, because he promises one major ecn omic move that will definitely have a real-world effect on oil prices in America: a balanced budget, with less government spending. A balanced, less stressful budget will see the exchange value of the Dollar rise and thus the price of oil fall in dollar terms. Today the Euro sells for $ 1.55; two weeks ago it sold for $ 1.59: thus the recovery of the Dollar in exchange markets is already beginning. By mid-2009, with John McCain's first Federal Budget presented to Congress, the Euro might only sell for $ 1.25. That would mean a 20 % decrease in the price of oil in Dollar terms.