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White House Sets Long View on Oil
Neil King Jr., Wall Street Journal
Administration Says Prices to Stay High; Growing Demand
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With the debate raging over why oil has risen past $100 a barrel, the Bush administration has joined a growing camp that says an unusually tight market could keep prices high well into the future, with no easy fix in sight.
Big producers within the Organization of Petroleum Exporting Countries, along with some analysts, say oil is soaring largely because of financial speculators and a falling dollar. Implicit in that view: What goes up can just as easily come down.
Indeed, oil yesterday declined $4.94 a barrel — its largest drop, in dollar terms, in 17 years — to $104.48 a barrel as investors fled commodities in general. (See related article.)
But senior Bush officials have taken a longer-term, grimmer position, one that is increasingly prevalent within the industry. In their view, prices will remain buoyant well after speculative investors head elsewhere, as the cost of finding new sources of oil continues to soar and demand in Asia and the Middle East climbs.
As a result, Bush aides argue that only longer-term efforts will drive oil prices down significantly.
(20 March 2008)
Some welcome realism from the White House. (The full article may be available if you go through GoogleNews.) -BA
Contributor Aaron Wissner writes:
Reporter Neil King, Jr. is aware of peak oil. In this article, he highlights how speculation is not the core reason for rising oil prices. The Bush administration points to “rising demand”, which can be rephrased as “demand is rising faster than supply” or “prices are rising due to natural free market functioning”. My only quibble with this article is the word “demand will outstrip supply” which actually means “price will rise”. Unfortunately, this “outstrip” concept appears frequently, leading to the misconception that it is possible to have an actual shortage due to the difference in the growth rate between oil supply and oil demand. The reality is that as long as oil is traded on in a free market, demand can not “outstrip” supply, because the price rises to the equilibrium level.
UPDATE (Mar 25) Comment from Contributor Greg Yurash
While economics is not my occupation, I have taken several college classes on economics, and I find comments like Aaron’s disturbing. I do not know how old Aaron is, but I suspect that he is not old enough to remember what a gas line is. While it is true that price changes will in the long run change demand for a commodity, it is perfectly possible to have shortages in the short term. When you have sat in line for gas for an hour, only to have an ‘out of gas’ sign posted just before you get to the pump, I would have to call that ‘demand exceeding supply’. When a farmer in India is dependent on diesel fuel to run a water pump for irrigating his crop, but his crop is set to fail because he can not buy diesel locally at any price, I would call that ‘demand exceeding supply’.
I am currently working on an article relating to resource decline mitigation. Preliminarily I can say that because of infrastructure design, it will be nearly impossible for the U.S. to achieve a yearly demand decline rate of more than 2% per year without falling into chaos. Even at that, we will be looking at ‘Great Depression’ effects or worse on the economy. So when you look at some of the other postings even on the Energy Bulletin that suggest that we will see a Post Peak Oil decline rate of 4% or more, the prospects of a declining energy future are sobering. Microeconomics only tells us that substitutes are supposed to magically appear, but this also looks less likely to bridge such a change as each day passes. I have no doubt that people facing necessity will find ways to survive, but there is also little doubt that the U.S. will become a very different place within out lifetimes, and ‘Price Equilibrium’ alone will not be the cure.
Make oil a public utility
Ed Ludwig, The Albany Times Union (New York)
The furious moans and groans about gasoline and heating oil prices have been met with a public-be-damned attitude from the oil industry – and nothing is being done to rectify the problem. Prices continue to sky-rocket.
Why not designate oil companies as public utilities?
A public utility has been defined as “a business that provides an everyday necessity to the public at large” – such as water, electricity, natural gas, telephone service, transportation, cable TV and other essentials.
Because of the need for and dependence on these commodities and products, the business of supplying them is readily subject to abuse. Without regulation, price gouging can become rampant in a time of great demand and economic turmoil, such as this.
… Some members of Congress have supported an excess profits tax. Others have said the tax breaks accorded two years ago to encourage domestic production should be rescinded. Advocacy groups say the profit margins are unjustifiable.
The oil industry’s defense relies on the economics of the market place and the mounting difficulties of competing with subsidized foreign oil companies – PetroChina, Petrobras in Brazil, Gazprom in Russia.
The lack of domestic refinery capacity also has been cited as a reason for escalating prices.
What is left out of these various assessments and ripostes is, most importantly, the consumer. The consumer’s only recourse is to reduce consumption. But consumption most often is an economic necessity – the most harmful effects falling on those who may be the neediest and who can least afford the price increases. What is a less-than-wealthy person who must drive to work or pay for home heating oil to do?
None of the proposals, such as an excess profits tax or a retraction of tax incentives, will directly benefit the public or make up for the overrides paid for oil products in the last several years.
… Part of the problem is that the United States has no comprehensive energy policy or oversight.
Ed Ludwig is a U.S. District Court judge in Philadelphia.
(24 March 2008)
Also at Common Dreams.
Depending on one’s political perspective, one chooses as a scapegoat for rising oil prices one or more of the following: oil companies, OPEC, China/India or environmentalists. Sound policy requires going deeper into the long-term trends, like peak oil.
There may be reasons for nationalizing oil companies, but keeping oil prices low is not one of them. Countries like India, China, Iran, Venezuela and Burma are struggling to get out of the trap of having subsidized fuel prices. Subsidize mass transit, energy-efficient housing, or renewables – anything but fossil fuels. -BA
Into the Economic Abyss
Rachel Beck and Erin McClam
For months, Americans have been subjected to a sort of economic water torture – a maddening drip of bad news about jobs, gas prices, sagging home values, creeping inflation, the slouching dollar and a stock market in bumpy descent.
Then came Bear Stearns. One of the five largest U.S. investment banks nearly collapsed in a single day before the government propped it up by backing emergency loans and a rival stepped in to buy it for a paltry $2 per share.
… Even before the crippling of Bear Stearns, the U.S. economy was acting as a slowly tightening vise – an interconnected web of factors combining to squeeze Americans from all sides.
Take Jaci Rae of Salinas, Calif. She runs a company, Luco Sport, that sells golf bags and accessories. The merchandise is made with foam, which is based on petroleum, so record oil prices have taken a heavy toll.
On the other end, her clients are feeling the pinch, too, and cutting back. Sales to retail clients are an eighth of what they were a year ago. So Rae had to cut five of her 20 employees loose.
Now the company isn’t buying products as far in advance. With gas prices running high, she waits for shipping companies to pick up products from her headquarters instead of having an employee drop them off.
She is nickel-and-diming expenses at home, too. She eats in every night, has stopped going on road trips to visit her family, dropped her satellite dish and canceled her monthly Blockbuster movie rental.
(24 March 2008)
Long article.
Truckers ‘going broke’ and threatening to strike
Barb Ickes, Quad City Times
What started as a small, online grassroots effort now appears to have the potential for something bigger.
Dan Little, the owner/operator of a livestock hauling company in Carrollton, Mo., estimated Tuesday that at least 1,000 other truckers from across the United States have committed so far to joining him in a strike on April 1.
Although none of the truckers interviewed Tuesday at the Iowa 80 Truck Stop, Walcott, which is just off Interstate 80 west of Davenport, has heard of the intended strike, some said they would shut down, too.
Weldon Kinnison, a Virginia trucker who was hauling soft drink from Indiana to Denver, [said: ]“The fuel is too high, and there’s no reason for it. I don’t listen to the CB (radio) that much, but I guess I’ll start now.”
At issue is the rising cost of diesel fuel, which has reached or exceeded $4 per gallon in at least 17 states. But Little does not expect his strike to bring down the per-gallon price of gas, nor does he expect to have any effect on the oil companies.
“What I would personally like to see is our federal and state governments, until our economy recovers, suspend federal and state fuel taxes,” the 49-year-old said. “The second thing I’d like to see is an oversight committee for truck insurance, which is part of what’s taking us down.
(19 March 2008)
‘You’re working for gas now’
Steve Hargreaves, CNN Money
The people of Camden, Ala., pay a bigger chunk of their income for fuel than anyone else in the country – meaning tough choices for the ever thinner family budget.
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Corey Carter spends a quarter of his paycheck on gas.
The 30-year old Carter, who earns $7 an hour making car parts for a Hyundai factory near Montgomery, Ala., spends $65 a week on gas, double what it cost just a few years ago.
Paying $30 more for gas out of a $240 paycheck makes a big difference.
“Going out to eat, going to the movies, you can’t do stuff like that,” says Carter, filling up his Firebird at a BP station in Camden, a quiet southern town 80 miles southwest of Montgomery. “You’re working for gas now.”
Carter, and other residents that live around Camden, are having a particularly hard time – they devote more of their budget for gas than anyone else in the United States.
(24 March 2008)
