Recently Bill O’Reilly and Lou Dobbs ignited a national debate about rising gasoline prices. Dobbs stunned Fox’s “humble correspondent” by stating on the “O’Reilly Factor” that the main reason for expensive gas in the U.S. is excess “supply” being sold to China and India. That made O’Reilly upset and he spent much of the week blaming the “greedy” oil companies for our woes.
Remember this is Fox News–not the mainstream media. Usually liberals blame the oil companies. However, oil prices are an area where Bill O’Reilly leans left–he really believes the oil executives are “hosing the folks.” He’s believed it for years. He may be partly right.
But I don’t think it’s the best answer.
So why are gas prices are so high, and what can we do about it?
First of all, let’s bring the current administration into the equation. When Barack Obama took office in January of 2009, the average price of gas was $1.85 (seems like an eternity ago). Today prices are closer to $3.85 (depending on your region and state taxes)–a 120 percent increase.
In his Saturday, February 25 radio broadcast, the president said there was no easy answer to the problem and blamed Republican complaints as gimmicks: “We know there’s no silver bullet that will bring down gas prices or reduce our dependence on foreign oil overnight,” he said.
The president suggested that the Republicans have only one answer: drill. But earlier in the week he scoffed at that suggestion: “You know that’s not a plan, especially since we’re already drilling. It’s a bumper sticker.” One journalist wryly commented, “Speaking of bumper stickers, remember ‘Yes We Can!’ Mr. President?
Indeed we do.
After filling up the car this weekend–$45 for three-quarters of a tank–I’ve done some research on rising gas prices. Here’s what I’ve found, with a special eye to the bigger picture.
SHORT TERM PROBLEMS
First, let’s look at our immediate predicament. In February 2012, we have record price levels and a threat of four of five dollars a gallon costs hitting us during the summer months.
Why? Here are what most experts say:
1. Gas prices tend to rise every spring in anticipation of increased demand during the summer driving vacation season. As a result, gas prices hit $3.50 a gallon by February 15, two weeks earlier than in 2011.
2. Global demand is raising the price of crude oil— It stands at $109 a barrel. This accounts for 55% of the price of gasoline. Distribution and taxes influence the remaining 45%. Usually, the latter items don’t change much, so that the daily change in gas prices primarily reflects oil price fluctuations. Right now there is growing demand in the developing countries of Asia (India and China) and the former Soviet Union. Their populations are rising out of poverty, and buying cars and heating oil in record amounts.
3. Commodity trading fear – Oil prices are set by commodities traders who buy and sell futures contracts on the commodities exchanges. These are agreements to buy or sell oil at a specific date in the future at a specific price. Commodities traders can create a self-fulfilling prophecy by bidding up oil futures prices. Once this starts, it can create an asset bubble. In April 2011, fears about unrest in Libya and Egypt sent oil prices up to $113 a barrel. In May 2011, as oil prices dropped, gas prices stayed high. Why? Commodities traders were concerned about refinery closures due to the Mississippi River floods. In February 2012, concerns about a potential military action, by either Israel or even the U.S., against Iran caused high oil prices.
4. Lower US consumption – Oil consumption in the United States is down 15% this year (we’re driving less and experiencing a warm winter). Usually this is a good problem that lowers prices, but this year it was so severe that it led to problem number five.
5. Refinery shutdowns and shake-up – This is probably the most unusual and significant short-term reason for higher prices. On February 23, Bloomberg reported that the U.S. had lost 5 percent of its oil refining capacity in the last 3 months. Over the past year, refineries have faced a squeeze. Prices for Brent crude have gone up, but demand for gasoline in the U.S. is at a 15-year low.
That means refineries haven’t been able to pass on the higher prices to their customers. As a result, companies have chosen to shut down some refineries rather than continue to lose money. This month, two large refineries outside Philadelphia shut down: Sunoco’s plant in Marcus Hook, Pa., and a Conoco Phillips plant in nearby Trainer, Pa. Together they accounted for about 20 percent of all gasoline produced in the Northeast.
Bloomberg gives further insight into the refinery problem:
“The U.S. refining industry is being split in two. On one hand are the older refineries, mostly on the East and Gulf Coasts, that are set up to handle only the higher quality Brent “sweet” crude—the stuff that comes from the Middle East and the North Sea. Brent is easier to refine, though it’s gotten considerably more expensive recently. (Certainly another reason for higher gas prices.)”
“Then there are the plants able to refine the heavier, dirtier West Texas Intermediate (WTI)—the stuff that comes from Canadian tar sands, the deep water of the Gulf of Mexico, and the newer outposts in North Dakota, which just passed Ecuador in oil production. These refineries tend to be clustered in the Midwest—places such as Oklahoma, Kansas, and outside Chicago. While the price of Brent crude has closed at over $120 a barrel in recent days, WTI is trading at closer to $106. That simple differential is the reason older refineries that can handle only Brent are hemorrhaging cash and shutting down, while refineries that can handle WTI are flourishing.”
“’The U.S. refining industry is undergoing a huge, regional transformation,’” says Ben Brockwell, a director at Oil Price Information Services. ‘If you look at refinery utilization rates in the Midwest and Great Lakes areas, they’re running at close to 95 percent capacity, and on the East Coast it’s more like 60 percent,’ he says. This is primarily why the cheapest gas prices in the country are found in such states as Colorado, Utah, Montana, and New Mexico, while New York, Connecticut, and Washington, D.C., have some of the highest prices.”
These five seem to be the current culprits. Steve Maley (Tulsa World) writes a good article on ten ways to deal with these problems in the short term. You can read it here.
But there is a much bigger problem we desperately need to solve.
THE BIG PICTURE
First let’s talk about the the destructive power of inflation. In fact, price inflation is such a “normal” and insidious thing that we barely notice it. We’re used to things going up in price. We’ve been told by the powers that be that rising prices are standard fare.
They weren’t normal in America for our first one hundred and fifty years. For a majority of our nation’s history, our currency remained as “sound as a dollar” and prices changed little from decade to decade. Then in 1914 we created the Federal Reserve and on January 5, 1933 we went off the gold standard. For the past eighty years, we have been systematically devaluing our currency.
The greatest decline of the dollar has happened recently. In the past six years, the dollar has decreased in value by 40%. When you hear wind of QE2 (quantitative easing) and other methods that the Federal Reserve uses to manipulate our currency, don’t rush to applaud them.
We are flooding the world with fiat dollars to stave off default and pay for our massive government debt. Remember when a $20 bill seemed like a decent chunk of money? Remember when coins or change were valuable? We hardly keep them or use them anymore.
The inflationary spending of the Fed is practically criminal–and one reason why some Republicans are voting for Ron Paul. He’s one of the few politicians willing to be honest about it.
Think of monetary inflation as a game of Monopoly. When you “empty the bank” to all the players, you have more money to spend on “Park Place” or anything else–so prices go up. Why? Increased cash in everyone’s wallet “bids” up the value of everything–which devalues the currency. In my brief driving career (1969-2012), monetary inflation has increased gas prices from 25 cents to almost four bucks. That’s a 1600% increase.
We live in a scary time for inflation in America. Food price are up 30%, gasoline 120% in three years, and run-away inflation could be in front of us. But there is a primary reason for inflation. It comes down to a nation’s faith and morals.
America used to be a nation of faith–of forward-thinking, God-believing people. Our faith produced morals, i.e. hard work, financial prudence, self-control, and a greater concern for “posterity” than for ourselves.
Then the Baby Boom and subsequent generations came along. We rejected God’s authority and cast off all restraints on morality–including financial prudence and debt. We became a “consumer” society where meeting my needs was more important that saving for our children. We used credit cards and risky mortgages to fund our immoral (non-right) attitude of living beyond our means. And we elected officials who did the same thing on a federal level.
Faith, morality and freedom produce hope. Unbelief, immorality, and bondage to debt create “uncertainty.” The biggest problem contributing to rising gas prices is uncertainty, i.e. unbelief.
The American people need to turn back to God, restore faith, stop their reckless spending and demand that their leaders do the same. Then, we must elect leaders who have the guts to reign in the Fed, stabilize the dollar, shrink the size of government, pay down the debt, get off the backs of business, protect the environment, and drill bay drill!–for the sake of future generations.
Prudent faith and actions can bring real long term hope–including cheaper gas..
The one-to-two million gallons of crude oil (and natural gas) that have been leaking steadily into the Gulf of Mexico for the past fifty days are certainly a sobering environmental tragedy. The horrific explosion of British Petroleum’s Deepwater Horizon oil platform on April 22 is now estimated to be six times times worse than the Exxon Valdez spill. Much sea-life and shoreline are at stake and thousands of jobs and economic recovery hang in balance.
I have been following the BP Oil Spill from the beginning and trying to make some sense of it. I’ve also joined the many people that have been praying for the peoples of the Gulf–that God would show them what to do to deal with this man-made disaster and its possible long-range effects on their lives.
There are a number of important lessons that are emerging from the catastrophe. I will share ten of them in relative order of importance (with “10” being the least and “1” being the most important lesson that can be learned). All of them are important.
#10 – Mistakes happen in a fallen world.
No company–including British Petroleum-should be held to an impossible standard. There is no such thing as perfection in a fallen world–just improvement. As long as man inhabits a fallen world, there will be times of disaster such as this one. There are few victories in life without risk and potential danger. But they are worth pursuing with an eye on human progress–and our sights should remain high. Let’s just learn from the mistakes and vow to not make them again.
#9 – British Petroleum must held accountable. BP is responsible for the disaster.
Under present regulations, BP could be liable up to $1100 dollars a spilled gallon or 2.8 billion dollars. If criminal intent is found, the fine could be astronomical. Make British Petroleum pay for their mistake, but don’t punish them in such a way that they can’t continue to be profitable to be able to pay their debt back to the Gulf States. The six month moratorium on Gulf drilling is a bad deal–both for the energy industry and for many other dependent jobs in the area.
#8 – Good regulations and contingency plans are vital – follow them!
The Federal Government failed in its regulatory duties by giving dubious awards to the BP rig that exploded and by failing to implement a stenuous emergency plan that had been pre-approved. BP also lacked strong emergency plan measures (and delayed that plan twelve days after the disaster) that could have contained the extent of the oil slick damage. There is a place for good regulations–especially when risky ventures are taking place.
There are also some ingenious and creative clean-up plans run by enterprising Americans and even some foreign governments that both BP and the Federal Government are not allowing to be used in the massive clean-up effort. If there should be a moratorium on anything, it’s bureacratic red tape. Nothing could be worse than the oil being left to defile the beaches and eco-systems of the Gulf region.
#7 – Bad energy policy led to risky drilling. This is the Federal Government’s fault.
The main reason for this gigantic mess is that due to bad energy policies that have prohibited oil companies from drilling in many states, and in shallower waters, British Petroleum and other companies have been forced into deep waters where there is a much higher degree of uncontrollable circumstances. If this had been an oil-shale well in Wyoming, it would have been capped immediately. If it have been an explosion in Prudoe Bay, the fix would have been quick and the environmental damage limited due to its distance from civilization.
BP was drilling at 5000 feet below sea-level because our unwise politicians have not let them drill where it’s safer and better. It’s time to stop the nonsense about energy drilling and exploration in the fifty states and shallow waters off both coasts. Both can be done safely and effectively if we have the political will to do what’s right.
#6 – We should begin drilling in ANWAR immediately. The best defense is a good offense.
There is no logical reason whatsoever that we should not be drilling vast amounts of oil in the Alaska National Wildlife Preserve (ANWAR)–and the remedy should be started immediately. We have a vast reserve of oil and natural gas at our disposal in Alaska in an area that poses little environmental danger. It’s time to stop being politically correct and drill the wells and turn on the spigots in ANWAR as soon as possible.
#5 – Oil is essential to the modern world and should not be phased out.
Bikes and sneakers have petroleum products in them. Deodorant comes from oil and gas. Milkshakes have a chemical based thickener. Oil is everywhere. It’s in carpet, furniture, computers and clothing. It’s in the most personal of products like toothpaste, shaving cream, lipstick and vitamin capsules. Petro-chemicals are the glue of our lives–even in glue, too.
“It’s the material basis of our society essentials” says Michael Wilson, a research scientist at UC Berkeley. “This is the Petro-chemical Age.” 93% of American plastics start with natural gas or oil. Why? Because the element essential for life–carbon–is found there. The carbon atom acts as the spine with other atoms attaching to it in different combinations and positions. This makes it indispensable for modern life and production.
#4 – We must unleash safe energy independence production in all fifty states and in shallow waters.
There has been a growing “conspiracy” in this country for over thirty years to restrain the United States from becoming energy independent. This insanity can be blamed on the radical extremes of the environmental movement and its political allies. The results of this have been disastrous–and the Gulf Oil Spill only makes us more vulnerable to sky-rocketing prices due to shortages and bad policy.
“Renewable sources” cannot save us–at least not in the next fifty years. We can’t power our vehicles or civilization on wind and solar power. That is a pipe-dream that needs to be openly confronted. We need to unleash the best of industry to drill oil and natural gas wells in our states and waters; to build nuclear reactors such as exist in France; to allow new techniques of oil-shale extraction to be implemented; to create new and better batteries; in short, to unleash a “Manhattan Project-style” explosion of all energy source solutions to curtail the forced dependency of America on foreign oil. It’s both crippling and nationally suicidal. Let’s Unleash, Baby Unleash!
#3 – The Federal Government is a lousy savior.
Both Hurricane Katrina and the BP Oil Spill proved the ineptness of the Federal Government to solve large problems. In the case of Hurricane Katrina, even though we had a strong leader in President Bush, the federal response was weak and late. The best work was done by local governments and private organizations and individuals. In the BP Oil Spill, the fact that Barack Obama is a politician and not really a leader added massive paralysis to the expected federal response.
Here’s the lesson: Governments are good at protecting their citizens in war, but they are lousy at most everything else they do. In this case and also in Katrina, the Federal Government should have made resources available immediately and then gotten out of the way of the local leaders and enterprising non-profits and individuals. “The era of Big Government is over.”
#2 – The EPA should be abolished or severely curtailed.
The Environmental Protection Agency (EPA) is one of the worst federal entities in America. It serves no useful purpose except to retard business, innovation, and progress in America. It was created by President Nixon in 1970 and has been a curse ever since. Interesting, the first Earth Day during its inaugural year was scheduled on the centennial of Vladimir Lenin’s birthday– April 22, 1970. That little known fact tells you a great deal about the goals of the environmental extremists.
Adding insult to injury on American prosperity, the EPA has recently been instructed by the Obama administration to put draconian carbon emission restraints on American business and consumers–bypassing the difficult-to-pass Cap and Trade legislation that has stalled in Congress. This would be a huge mistake, and must be stopped by our current legislators.
Let’s go a step further and abolish the EPA. Talk about a new “morning in America!”
#1 – We must vote for pro-energy-independence leaders in 2010 and 2012
There is no way to recover from the BP disaster and become an energy independent America without getting rid of the anti-development leaders that now control Congress and the White House. The American Dream and destiny is under siege from those who would reduce us to mediocrity and poverty through unwise energy development and restrictions.
We must free ourselves from the energy slave masters and create a boom of energy invention, development, production, and independence in this nation.
In 2010, vote for congressmen and women and senators that understand that modern society is based on oil and that its potential must be unleashed.
In 2012, vote for a free enterprise-savvy president who understands the respective roles of business and government, and frees both of them to do their very best for the American people.