Gas Prices…

24 04 2008

I listened to Bill O’Reilly ask a guest of his the other night on ‘The Factor’ who is it who puts the price on a barrel of oil? He couldn’t quite come to grips with the guy’s answer, for like most of us, we want somebody to blame. Someone we can name, point to and say “It’s THEY!” But, the sad reality of all this is, “They” is really “Us” … to a large extent anyway. Gas prices have less to do with the emerging China market or any dwindling supply, and they certainly have less to do with people driving “GASGUZZLERS” then we say and think. Supply and demand? Well, that’s a pretty much a crock; too, with the exception of as long as the demand is there, there is no incentive for prices to come back down… And those people telling you we need to increase the tax on gas to discourage consumption …well, we DO need to reduce our consumption…, but ALL THEY REALLY WANT IS YOUR MONEY! Paying more to make the price less isn’t really a wise strategy. Just the typical way many politicians think.

The supply is manipulated directly by the suppliers. OPEC, Venezuela, even us right here in America. The supply is manipulated by how many rigs are pumping, and how much stockpile they wish to keep. There is no real “shortage” of oil. Not in the near term anyway. Besides, we have some of the largest reserves of oil in the world right here in America. In the Gulf, off the California coast, and in Alaska. We’ve limited our domestic production for our own purposes. Worrying about the potential for harm to our ecosystem and beauty of our California coastline. Worrying about harming the landscape and wildlife of the vast Alaskan nature reserve. Those are decisions we’ve made and live with, but they do affect our domestic supply.

The real culprit, as for as Oil and gasoline prices go, is the market. Speculators and profiteers. Oil is a commodity, just like wheat, corn, or cotton. As long as someone is willing to pay the price that’s what the price will be. And apparently the demand is there to support the price, because someone is still willing to pay that high a price. Speculators buy oil with the intent of selling it later for a higher price. Oil Companies and refiners buy the oil to convert it to petroleum based products. We buy those products, and as long as we continue to they will keep producing them for us, whatever the price. Speculators read the market and try and forecast what we will be willing to pay for the end product. That’s how they make money, seeing just how much they think they can get out of the marketplace from people’s willingness to pay. And right now they are making a bunch of money. After all, it’s a commodity, and higher prices mean higher profits!

Gasoline prices are much the same, but are even more volatile. The demand for the supply keeps prices high, but there is something we need to take note of here – Oil company profits rose in direct comparison to the rise in price. Nothing else in the market has really changed. There is an adequate supply of crude to turn into gas. Undoubtedly, a couple of years back hurricanes Katrina and Rita put a dent in our supply, directly affecting our nearby gulf operations, from which we do get a goodly amount of our oil. And yes it did shut down refineries in the area. But the main effects of those hurricanes were caused by our artificially low refining capacity. That lack of refining capacity is a mechanism which the oil companies use to increase price by withholding supply. And the oil companies aren’t interested in building more refineries to increase that supply. Why should they when they can make more with less? Do you see anyone building more? No. In fact they have a lot of refineries shut down. The fact is that we even have a lot of regulations that discourage building those refineries. And they don’t complain about that because they aren’t really interested in building any new ones anyway. See, a big supply, or stockpile, would only increase volatility in the market that they can’t control. And if they can’t control it they don’t see any self interest in doing it, consumer be damned. The main thing that Katrina and Rita did was give them “reasons” to raise prices. Other than a short term ‘spike’ until local supplies could be replenished from an abundant world supply, it was just an excuse. Why do I say the world supply was abundant? Because about that same time Saudi Arabia cut its production, for they were pumping more than they could sell. But during that “crises”, with the outages, shortages, and all the long lines, the oil companies, or rather “Gas” companies, made record profits! If you think I’m lying just go check their quarterly reports.

Now I’m all for oil companies making profits. Those companies have stockholders and stockholders are people. Remember, when those companies make money, that’s people, maybe even you, certainly your neighbors, making money! And that means jobs, which means even more people making money. But, then again, we can cut off our nose to spite our face! Dollars are dollars, and more spent here means less over there. If I put more of my paycheck in my gas tank, somebody else is going to see less of it. The grocery store, or pharmacy, or local discount store…whoever, will have to take the hit. That’s what price gouging really is. When I have to divert more of my resources away from where I wish them to be, I’m being gouged. Especially when there’s no good reason for it. And when someone is making record profits when there’s supposedly some crises driving up prices, well….!?!

We need to worry about more than just our ability to fill our tank at the gas station. This current situation has the potential to harm much more than just our ability to run the roads. Our whole economy is at stake here. Almost everything we do is transportation based. The high cost of diesel fuel is driving up the cost of just about everything. EVERYTHING. Everything has a cost related to transportation. Take food, for instance. Farmers have to turn the soil and prepare the seed bed. Then plant. Then harvest. All of that has a fuel cost. Then after harvest they have to transport the crop to, say, a grain elevator (storage facility). Then it has to be shipped to whoever turns it into a usable product, such as flour, or meal, or can of peas…, whatever. Then it must be transported to a distributor, who then must transport it to the grocery store. Transporting that crop time and time again all adds to the cost, not to mention the fact that you then have to go and get it. Just about everything we do has a fuel cost added to it. And, to top that off, our economy is suffering right now do to the natural rise in prices associated with the rise in the minimum wage. We’ve just started that process, with another hit coming right around the corner. (Remember, too, our elderly, and those on pensions or other fixed incomes, got no such raise…their “check”, in effect, just got lowered.) And it’s our economy where our country is most vulnerable.

Oil will eventually run out. Artificially, or for real. Even so, right now there are still vast untapped reserves, even right here in the U.S. But will we want to tap those reserves? Even with all this going on …probably not. Is it in our best interest to diversify our energy supply with alternate fuel sources? Most assuredly so! It would absolutely be in our own best interest not to have to rely on one main source, or industry, for so much of our energy needs. But lets not BS everybody with SUV’s and China and other reasons for what we’re paying at the pump. We’re paying out the you know what for gas because that’s the way “They” want it. (And that’s why ‘they’ made more money in the last few years than ever before!) Remember though, “they” are “us”.

Gas prices will eventually come down, at least some. Why? Because we’ll get tired of paying the price, and they will have gotten out of the market what it could bare at the time. Supplies will change (artificially) and they will still sell it to us at a price that they know we’ll pay. And they will still make a profit …and a big one at that. You can do that when you control the supply. In the meantime we fuss and grunt and groan. Other areas of the economy suffer. The elderly and the poor suffer worse. Those that depend on travel for their livelihood bend over and bare it, or look for something else to do. And we wait, just like we’ve done many times in the past, till relief comes. And it will come. Because if they want to stay in business and continue to make those profits they can’t afford to bleed us dry. Even if we do diversify our energy resources, unless we drastically change our lifestyle in some very unappealing ways, the need for them will always still be there. And the price will still be what the market will bare.

So, when you think about something like adding taxes to decrease demand remember this, you’re only giving somebody else a chunk of your money. That, and putting the squeeze on those that aren’t wasteful, and already hurting from high gas prices. Many people are trapped by this situation, and those people are the vast majority. Why punish them to punish the few who are wasteful. If I can pay 50 – 60k or more for a big SUV, I’m not going to be too concerned with gas prices. And as far as generally reducing consumption? Consumption is jobs, and jobs are good things, so we must tread lightly there. The supply will still be what the suppliers and the oil companies wants it to be, and we’ll still be paying them what they want us to pay. And their profits will still be there. If they want to make X, we all know one way or another X is what they are going to make. The only ones suffering will be us. And just from one more reason.

What we need to be concerned with is getting the “Big” oil companies themselves to diversify into alternate energy sources. They have the pockets deep enough to do it. Some are, and that’s a good thing. If they can be shown that they can keep a hand in the marketplace while helping to reduce our oil and gasoline consumption we stand a good chance to make real changes in energy dependence. Especially our foreign energy dependence. Forcing lifestyle changes hasn’t worked and probably won’t. This IS America, after all. Being overly concerned with big cars or trying to force reductions in usages through taxation may sound legitimate on face value. Besides, change is best made when it comes naturally. But swinging swords at windmills will get you nowhere fast.

Are there legitimate reasons to worry about gas prices and the supply of gas and oil? Absolutely! That’s why what is happening now is such a bad thing. If there were to be a real shortage created by a geo-political crisis, this holding down of supply would cause a real disruption in availability. The stockpiles are just not there to help ride out a situation such as happened back in the seventies. True market prices would take over and prices would climb much higher. Then owning that big SUV would be a real liability. But remember too, it would all stem from the market being so manipulated in the first place. Now, THAT’s the reason we need to have alternative energy sources. Cause, as it is now, if everybody’s car got 50 miles to the gallon, or 100, the gas companies would see to it that there was only enough gas available to supply those cars (remember supply and demand). And at a price that they can make a hefty profit. So, what’s the difference what kind of mileage you get when it comes to supply …if you still need a part of that supply to go those miles? And again, any disruption…

…and they would still blame it on us.





2 responses

5 05 2008
untapped oil in america

[…] of oil? He couldn??t quite come to grips with the guy??s answer, for like most of us, we want som the Fast Lane: Transportation Application Offers Significant Revenue Opportunities for RFID […]

14 05 2008
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[…] of oil? He couldn??t quite come to grips with the guy??s answer, for like most of us, we want som prices rise 1.7 percent in April San Francisco ChronicleVenezuelan consumer prices rose […]

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