When President Obama took office, regular gasoline cost $1.85 a gallon. Today it is $4.00 per gallon in many cities, and some analysts predict it could reach $5.00 or more this summer. Filling your tank could soon slam you for $75-$90.
Winter was warm. Our economy remains weak. People are driving less in cars that get better mileage, even with mandatory 10% low-mileage ethanol. Gasoline is plentiful.
Misinformed politicians and pundits say our pain at the pump is due to greedy speculators and greedier oil companies that are exporting oil and refined products at record levels.
Their explanation is superficially plausible – but wrong.
Energy Information Administration (EIA) data show that 76% of what we pay for gasoline is determined by world crude oil prices; 12% is federal and state taxes; 6% is refining; and 6% is marketing and distribution. The price that refiners pay for crude is set by global markets.
World prices are driven by supply and demand, and unstable global politics. That means today’s prices are significantly affected by expectations and fears about tomorrow.
A major factor is Asia’s growing appetite for oil – coupled withAmerica’s refusal to produce more of its own petroleum. Prices are also whipsawed by uncertainty over potential supply disruptions, due to drilling accidents and warfare in Nigeria; disputes over Syria, Yemen and Israeli-Palestinian territories; erroneous reports of a pipeline explosion in Saudi Arabia; concern about attacks on Middle East oil pipelines and processing centers; and new Western sanctions on Iran over its nuclear program and the mullahs’ threats to close the Straits of Hormuz.
Moreover, oil is priced in US dollars, and the Federal Reserve’s easy money, low interest policies – combined with massive US indebtedness – have weakened the dollar’s value.
Amid this uncertainty and unrest, speculators try to forecast future prices and price shocks, pay less today for crude oil that could cost more four weeks hence, and they get the best possible price for clients who need reliable supplies. When speculators are wrong they end up buying high, selling low and losing money.
Oil speculators play a vital role, just as they do in corn and other commodities futures markets.
Basic chemistry dictates that a barrel of crude (42 gallons) cannot be converted entirely into gasoline. Depending on the type of crude, some 140 refineries across theUSA transform each barrel into gasoline, diesel, jet fuel, heating oil, asphalt, waxes, petrochemicals and other essential products.
This manufacturing process leaves excess diesel fuel. American vehicles consume less diesel than refineries produce because our air pollution laws limit diesel use. US refineries export that excess diesel toEurope, which uses more diesel than gasoline, and Europeans ship most of their surplus gasoline to East Coast consumers. US refineries also sell excess inventories of other manufactured products to overseas markets, but diesel is by far their principal export.
Last year, for the first time since 1949, America was a net exporter of fuel and other petroleum products. Those exports injected $107 billion into our economy and sustained thousands of refinery and other jobs that otherwise might have been lost, as refineries also struggled in our stagnant economy.
Farm and factory jobs would evaporate if we made exporting these agricultural products illegal. Prohibiting fuel exports, and demanding that refineries manufacture only what we need here in the States, would have the same effects on our employment, economy and living standards.
TheUSAhas 1.4 trillion barrels of technically recoverable conventional oil, the EIA and other experts estimate, and enormous additional supplies in shale and tight sand deposits. The best way to keep prices down is to produce more of this American oil, and import more from secure, friendly, nearby suppliers like Canada.
However, our government prohibits leasing and drilling on nearly 95% of the onshore and offshore lands it controls, including off ourVirginiacoast. The feds are dragging their feet on leases and permits for the remaining 5% and over-regulating production on private lands. It vetoed theCanada-to-USKeystone XL pipeline. It is imposing layers of costly and unnecessary new regulations on every aspect of energy production it does not simply reject.
We are losing billions of dollars in bonus, rent, royalty and tax receipts, killing countless jobs, and impairing Americans’ living standards, health and welfare.
President Obama and his environmentalist and congressional allies want to end our “addiction” to oil, “fundamentally transform ”America, and “invest” billions of dollars (borrowed from us and our children and grandchildren) subsidizing efforts to turn corn, switchgrass, algae and pond scum into fuel.
Generating billions of dollars and millions of real jobs by producing American oil and manufacturing American oil products doesn’t fit this agenda. Even though one of every ten jobs created in the last three years has been in oil and gas, when it comes to petroleum, Team Obama wants to punish success, and reward failures such as Solyndra, Fisker and the Chevy Volt.
Skyrocketing fuel prices will certainly “boost” the cost of transporting people, raw materials, food and products by road, air and water. High cost of carbon fuels increases the price of manufacturing anything still made in Americas well as the price of preserving jobs, family and business budgets, and our many dreams that depend on affordable energy.
Hunting for scapegoats won’t lower pump prices. Reality-based energy policies will.
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