Oil executives were again called to Capitol Hill to testify about the ever-increasing price of gasoline. And again they came and left justifying their record profits and how helpless they are to do anything about the price. The Senate Judiciary Committee hearing follows President Bush’s trip to the Middle East to negotiate with the Saudis about the same problem. Today oil hit a record $132 a barrel and the average price for a gallon is now $3.81.
So why is it so high? Part of the reason is that India and China have been growing at an alarming rate this decade which increases demand and is always a good reason to increase the price. And they’ll tell you that it’s also due to security concerns in the Middle East.
This would be true if Iraq or Iran was the biggest producer of oil, but Saudi Arabia is. And contrary to popular belief, the Saudi Arabian peninsula is quite peaceful right now. Qatar and United Arab Emirates are 2 of the wealthiest countries in the world per capita and they are building mega resorts and artificial islands all over the place. Russia is 2nd and the US is 3rd. But of course we don’t actually use the oil we produce, we just keep it in reserves. Iran actually produces about half of the oil that we do.
And yes, China and India are growing, but we still consume 3 times the oil that China does and they hav 4 times the population that we do. But we can all admit we’re addicted to oil. But that’s no reason for the price to be high. Is it OPEC’s fault? Of the 13 countries that are members of OPEC, Iran and Iraq are in a pretty awkward position to be selling us oil reliably. Libya and Nigeria have uprisings every now and then, but I’m sure the pipeline is still flowing. And Venezuela…well Bush just doesn’t like Chavez, but there’s no supply problem there.
So WHY THEN? Why did I just pay 50 bucks to fill up when 10 bucks was a respectable trip to the pump 10 years ago? There hadn’t been a major oil reserve discovery since the 1970s, but major reserves have just been discovered in Brazil and China recently, which just increases the supply even further. But given the increased demand and problems in Iraq and Iran, the price was bound to go up…but not this much.
Ok, so you want to know the real reason? The first reason is the dollar is weakening. The price of oil is measured in dollars all over the world and that dollar is steadily going down. So oil really doesn’t cost much more than it did last year, we just pay more for it because we use the dollar.
The second reason, the one that’s going to make you mad, is the oil companies haven’t built a refinery in this country since 1976. They argue that they cannot afford to build any new refineries considering the new stricter environmental regualtions from the EPA. This coming from the industry that pumped in a staggering $100 billion in profit last year.
The third reason, the one that’s gonna make you IRATE, is that the price of gas goes up because you will pay for it. Whenever the price of a raw good goes up, retailers have to pay more for it and they pass that increase off to the customer. The retailer in effect makes more money, but their profit margin doesn’t necessarily have to go up. As a matter of fact, they can afford for their profit margin to go down because of the increase in revenue (think Wal-Mart). But Big Oil decided their profit margin would go up from 7% 10 years ago to 14% today. And that’s just not fair.
So how do we force the price back down? Regulation. I know they tell you that regulation puts a stranglehold on the free market and hinders advancements in technology. But considering they haven’t made a new refinery in 30 years they don’t seem to want to advance technologically. We regulate electricity, natural gas and water, all of which are just as vital as gasoline to our economy and way of life.
But we all know it’s not going to happen. And actually it’s ok. True we’re hurting right now, but the increased price in gas is inspiring the discovery of renewable energy sources and technologies. And as long as we support the new industries that are trying to clean the planet up and demonize the oil industry who is basically just punking us at this point, the better off we will be in the long run.
6 responses so far ↓
steve // May 21, 2008 at 11:02 pm
whoever wrote this did a damn good job.however, i do have a question. :
what would be the result if everyone and i mean everyone in the united states did not buy or purchase any oil products of anykind for 4 solid streight days? would it bring down the price of oil and gas due to a backlog or surplus or would the result be nill?
im at trucker45882@yahoo.com
steve
feedtheidiotbox // May 22, 2008 at 5:15 am
The concept of purchasing absolutely no gasoline, motor oil, heating oil, lubricants, or plastics for 4 days isn’t completely practical. But assuming we in a sense did not live modern life for a few days, it would not immediately affect the price of oil. It would, however, create a backlog and increase the supply of oil worldwide, but OPEC countries would simply pump less oil in response. So the following week would show a drop in the price of oil, but when we begin using it again (and assuming we didn’t overuse it because we didn’t for 4 days), the price would go back to normal. It would also likely create a stock market crash if goods and services weren’t being delivered and because speculators would sell off stocks in fear. It would definitely hurt Big Oil, but OPEC to a lesser extent. We actually use 1% less oil than we did last year, which is the first drop in consumption in this country in history. But consumption worldwide is up, so our conservation isn’t affecting things much.
Ray Pairan Jr // May 22, 2008 at 1:11 pm
The ‘free market’ is an illusion a very effective propaganda spewed across the globe extolling the precepts from the gospel of the “The Free Market” preached by the Economic ministers of the faith.
No more interpreting of illusion is necessary. It’s now time for action!
Review my articles:
A Green Future for Our Nation
Benefits of Nationalized Oil Industry
Nationalize the Oil Companies
Economic Society
At–> http://structuraleconissues.blogspot.com
For a better understanding of what where facing.
It is now time to make certain that everyone understands the truth, solutions, and what will happen if we fail to act now.
semperfried76 // May 22, 2008 at 11:18 pm
You raise a lot of interesting points, especially about the weakening Dollar. The true problem we have really has nothing to do with oil (other than the rising cost, and the fact that it is a product we produce), and that is the reduction of overall exports, coupled with the nearly unrestricted influx of cheap imports. (This is another mind boggler as well: why do we trade with China? Last time I checked, they were still every bit if not more communist than Cuba, who we still refuse to have anything to do with) The more foreign product we continue to buy, the more the value of the dollar will continue to slide. Of course, this is only one of the many reasons why the Dollar is in decline- it seems like the government’s answer to any financial crisis is to just have the Fed print more money. Honestly, when will they learn that this has NEVER done anything but increase inflation?
Dork // May 27, 2008 at 6:53 pm
Gas prices are regulated here in Nova Scotia, Canada. We are currently paying $1.36 a litre, which is about $5.15 a gallon. Regulation does not mean lower prices. Under regulation, prices are fixed on Thursday each week and remain at the same price for a full week. Prior to regulation, prices would fluctuate almost daily and were varied from station to station. Horray for regulation.
We (Canada) are pumping tonnes of oil out of Alberta, and still paying way more than our friends south of the border. I live about 25km from a refinery and still pay $5.15 a gallon!!! Explain that!
It costs me $125 to fill the tank in my Chev Silverado – you guys have it easy.
feedtheidiotbox // May 27, 2008 at 7:03 pm
We have subsidies in America that keep the price down. So subsidies coupled with regulation is what the article is referring to. Oil company profits need to be capped just like the electric company and the water company.