Fred Smith, a Very, Very Smart Man, Talks About Oil
A few days ago I had the opportunity to hear Alan Murray of the Wall Street Journal interview Fred Smith, the founder of FedEx. Murray is an exceptionally skilled interviewer, and every sentence he elicited from Smith proved fascinating--if you want to know what's going on in the world, ask a man whose company flies thousands of planes to hundreds of cities every day--but looking over my notes just now I found that Smith kept coming back to the importance of increasing domestic oil production.
In 2001, he said, the typical American family of four spent $1,500 a year on gasoline. Last year that figure had risen to $4,000. "What we've witnessed," Smith said, "is the largest transfer of wealth [a transfer from the West to the oil-producing nations] in the history of the world."
"If the U.S. gets any significant economic growth," Smith said, "you can count on the price of oil being raised to extract a large share of the value."
"The oil producers would do that intentionally?" Murray asked.
"Of course," Smith replied. "There are a lot of smart people in Riyadh."
Since oil represents a globally-traded commodity, Smith noted, increasing production here in the United States wouldn't affect the price. But instead of transferring them to oil-producing nations, he insisted, we should "keep all those dollars bouncing around the fifty states."
Smith lost his father when he was just four, grew up in small-town Mississippi, attended Yale before serving two tours of duty in Vietnam with the Marine Corps, and then founded and built one of the greatest companies in American business history. If Mitt Romney is still pulling together his vice presidential prospects, he could do a lot worse than to add Smith to the list.
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Sep '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
Harold Hamm is an energy adviser to Mitt Romney.
Mar '11
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
Yes, but he is another successful capitalist who knows nothing about Marxist philosophy, so he will know nothing about making life equally fair for everyone, as our dear President does.
Aug '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
The simple and correct answer to which forms of domestic energy we should exploit is all of them
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
This is true, of course, but when asked about natural gas Smith noted that the present compressed-gas and LPG technology places certain limits on the usefulness of natural gas for vehicles. Buses can be retrofitted, because, great big objects that they are, they have room for big compressed-gas tanks. But smaller vehicles are trickier. And although FedEx has already begun purchasing some natural-gas powered vehicles for its fleet of 90,000, FedEx--and the rest of the country--will be using a lot of oil for years to come.
Aug '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
Fed Ex cut over 1,700 jobs and closed 100 facilities just last year so Fred Smith is obviously an evil, heartless vulture capitalist who only cares about profits.
Aug '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
Peter Robinson
This is true, of course, but when asked about natural gas Smith noted that the present compressed-gas and LPG technology places certain limits on the usefulness of natural gas for vehicles. Buses can be retrofitted, because, great big objects that they are, they have room for big compressed-gas tanks. But smaller vehicles are trickier. And although FedEx has already begun purchasing some natural-gas powered vehicles for its fleet of 90,000, FedEx--and the rest of the country--will be using a lot of oil for years to come. · 2 minutes ago
Believe me, Peter, I am for drilling all the oil we can but it will be tough to grow our economy at the rate we need to without exploiting clean coal, natural gas and nuclear as well.
Apr '11
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
Yup.
May '12
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
As per John Tamny, Forbes & RealClearMarkets, the price of gas is the result of the price of gold (think G.O.D. gold, oil, dollar). The dollar against gold has skyrocketed, therefore oil is expensive against the dollar--but not against gold. We need to strengthen the dollar.
Nov '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
I'm no expert, but I thought money worked like this: we get oil, they get green pieces of paper. If they use those green pieces of paper to buy our stuff, great! We wanted to increase exports, didn't we? If they just sit on those green pieces of paper, even better! Paper is easier to come by than oil... This wanting "dollars to bounce from state to state" thing reeks of economic protectionism. I am in agreement with JimGoneWild. The rising price of oil is largely an inflationary phenomenon.
Dec '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
I think it is very important to be able to picture the issue with natural gas. It comes out of the ground compressed, as otherwise it would just happily stay there, unless pumped out (as most liquid petroleum is).
Natural gas is further compressed to become a product that will vent from our stove burners, BBQ grills, and water heaters, but at a very low level.
In order to compress it adequately to fuel transportation, we are talking about a completely different level of pressurization, thus the separate name for Compressed Natural Gas, or CNG. In order to pressurize it even further, to make it more affordable to move in bulk there's a third level where it is squeezed so hard it becomes Liquified Natural Gas (LNG).
Getting natural gas to homes for burners occasionaly leads to Gas Leak! newstories, fires, and explosions. In that context, please consider what it would take to move a population towards CNG for moving vehicles and LNG for moving fuel. Then add the security concerns.
I absolutely support the idea of us moving to CNG for transportation, but then I have never bought a copy of People magazine.
So, for now, power plants.
Jul '11
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
In front of me right now is a man who consults all over the country and north for all fossil fuel plants. He claims we could easily be energy independent if the buffoons at all levels of government had brains and a common goal Coal, Natural Gas, Hydroelectric and Nuclear can be massively pushed. More refineries. Rush to Alaska and partner with Canada.
Needless to say he wants Obama voted out.
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
If Saudi Arabia reinvested 100 percent of its oil money here in the United States, Smith wouldn't have an argument--but of course Saudi Arabia does no such thing. All Smith is saying, to put it another way, is that if we bought more oil from ourselves, then a much larger proportion our oil would indeed be here in the United States.
Unless I misunderstand him completely, Smith's not arguing for protection--that is, for government barriers to international trade. He's arguing for deregulation--that is, for the elimination of government barriers to the domestic production of oil. Smith wants less government, not more.
Me too.
Edited on May 25, 2012 at 3:18amApr '12
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
That and elimination of the NIMBYs.
Oct '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
"Since oil represents a globally-traded commodity, Smith noted, increasing production here in the United States wouldn't affect the price."
Not sure I understand this. I thought supply affects price (as do other factors). So why wouldn't increased American production affect the price of oil? Is he suggesting other worldwide producers would decrease their production in response, to keep the price high? If so, I'm not sure that makes sense either.
Can anyone help me on this one?
Oct '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
The last assignment in one of my economics courses had us evaluate an AP report that said a study it conducted showed that increased oil production in the U.S. has no effect on the price of gas. We had to eventually decide if they, or Rush, was right about whether we should drill for oil in the U.S. It turned out Rush was right (big surprise). We found that the data on oil production does have significance in forecasting the price of gas at the pump.
Oct '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
"But instead of transferring them to oil-producing nations, he insisted, we should "keep all those dollars bouncing around the fifty states."
Never understood that line of argument either. Unless the new production is nationalized by the US government, how do "we" keep the dollars in America? The increased US production is really production of us resources by private companies. Other than in the form of taxes, how would the petrodollars we put in our gas tanks automatically stay home?
Mind you I want to drill everywhere we can, because wells on American soil (as it were) are better than wells on foreign soil, from a security standpoint. But other than that, I just don't understand how domestic production keeps the dollars at home, unless the wells are government-owned.
Can anyone help me on this one, too?
Edited on May 25, 2012 at 5:00amOct '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
Dollars earned from oil revenues is like dollars earned from any other imports business. They stay here to an extent because it may not be worth it to exchange them into the home currency, or investment opportunities are here (hence why they're selling here). Also, those dollars will be used to buy Treasury securities to protect against inflation if there isn't any other attractive alternative. Capital tends to flow to countries that have it already and where there's a higher return/more stable investment environment.
Oct '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
A lot of hedging in that answer (no pun intended; and since I don't understand hedging, it may not even be a pun).
"...it may not be worth it to exchange them..." - or it may be worth it
"...or investment opportunities are here..." - or not, esp. today
"...if there isn't any other attractive alternative..." - but there might be
"...higher return/more stable investment environment..." - not exactly America's profile today
My point is, it's not axiomatic that domestic oil production would keep those dollars home. Some, sure, but not necessarily enough to matter. Seems to me to just be too unpredictable to depend on.
May '10
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
Peter Robinson
"If the U.S. gets any significant economic growth," Smith said, "you can count on the price of oil being raised to extract a large share of the value."
"The oil producers would do that intentionally?" Murray asked.
"Of course," Smith replied. "There are a lot of smart people in Riyadh."
An oilman told me many years ago that OPEC once tried to unilaterally raise global oil prices and didn't have much success.
The Sauds don't matter so much in the end. If we elect Democrats, prices will go up. If we elect Republicans, prices will go down.
Apr '12
Re: Fred Smith, a Very, Very Smart Man, Talks About Oil
The price of oil is based on the supply (and expectations of future supply) and demand (and expectations of future demand). The more the market believes that the US will increase domestic production, ceteris paribus, the more the price will go down. The question is the amount. If we currently produce 9% of the world's oil, and that is suddenly expected to double in the next ten years, that could have a significant effect on the world price, and thus our price. It doesn't matter if the oil is used here or exported. To the extent it's used here, it does save dollars that would have been sent overseas. If it's sold on the world market, that brings in foreign currency (e.g., yuan) that will be traded for dollars on the currency exchange. Either way, it's fewer dollars going overseas and staying there.