Wednesday, June 11, 2008

A Little Truth About Gas Prices

As gas prices rise, the confusion over cause and effect becomes more apparent with each debate or discussion of the issue. It's easy (fun even) to point the finger this way and that, but the root of the prices we see at the pump is a little more complicated than "Bush is an idiot" (though he is).

A few of the major factors in today's prices:

1. Demand
Low taxes and prices in the previous decade lead to increased consumption (Hummers!) without a contrasting increase in production. Demand caught up with supply in a way never seen before.

2. Hurricanes
Katrina wiped out a significant portion of our domestic refining capabilities.

3. Political Chest Pounding
You think Iran's Mahmoud Ahmadinejad isn't enjoying the attention Bush and the Neo-Cons are lavishing on him? And you think he hasn't been leveraging that with threats of cutting off supply? And you think this all isn't having an effect on Russia's output? Political tensions abroad - which most definitely include our ongoing presence in Iraq - have a larger effect on the price of a barrel of crude than most Americans realize or most elected officials will admit (insert patented "Reason to Drill in Alaska" or Chris Cannon "Shale Oil Rules!" meme here...It's a horrible short-sighted idea we can argue about later).

4. Free Market Failure
Bluntly stated, OPEC has no reason to address prices, because despite the $130/barrel price tag, they quite literally can't keep oil on the shelves in the global market. And it's not like a competitor is cutting into their market share with an alternative.


There are many other factors that play a role in the price at the pump, but in my understanding, these are the four big league players we are seeing the direct effect of today.

As for solutions? Well, that is where the real debate begins, right?

3 comments:

  1. Oil is traded in dollars and the dollar has taken a beating lately (due to our ridiculousness amount of debt and other various economic problems). Combine that with these other factors you've discussed here and you have a perfect recipe for a huge energy crisis. Expect to see a push from oil producing nations to change to the euro. That's when prices will get really ugly.

    ReplyDelete
  2. The Heritage foundation has some new criticisms of democratic energy policies. Any feedback on these
    http://www.heritage.org/Research/EnergyandEnvironment/1950.cfm
    http://www.heritage.org/Research/EnergyandEnvironment/wm1951.cfm

    ReplyDelete
  3. The best feedback I can offer on those is that 1) it is exactly what you would expect from Heritage and 2) Heritage accepts large dollar donations from Exxon Mobile.

    ReplyDelete