Thursday, September 13, 2012

The reality of gas and energy prices

The further we get into the campaign, the more disappointed I am in Romney.  Rather than trying to capture the political center, he seems to be more interested in placating the Tea Party.  The Obama campaign plays the race and class and other cards and draws the party further to the Left. He has alienated many Jewish voters who usually vote Democratic.  Many American and Israel leaders and journalists label Obama the most anti-Israel Pres.ever. Like most politicians both mouth too many platitudes and oversimplifies complex issues.  An example is Mitt's comments on high gas prices.  For a rich guy, he doesn't seem to understand much about economics and energy markets.  This article explains the economic reality of gas prices. If you want to understand the economic and political reality of the international energy situation, I strongly recommend Daniel Yergin's book "The Quest."  In a the highly competitive and unstable international market, we are largely at the mercy of many others and national events.  Yes, we can increase domestic production but that is only a partial answer.  Further, even if we increase domestic production, what if the Chinese and Indians offer to pay more?  Will we pass a law outlawing domestic export of oil? I don't think we want to start down that road with all the potential reprisals.


  1. I am not much of a conspiracy theorist, but I believe that there is a conspiracy among the oil companies and investors to keep oil and gas prices artificially high. It seems that every time something happens they use it as an excuse to raise gas prices. Most of the rise in prices has come about because of investors buying up oil futures. They claimed that there was an oil shortage back during the oil embargo in the early '70's. Later we found out that there was plenty of oil, they were just holding it back to jack up the prices. They did it again in the 1980's. The last two times were in 2008 and this last year. Both times there was actually a glut of gasoline. The President tried to lower the prices by releasing oil from the Strategic Reserves, but it was bought up by futures traders and had no effect on the price. The prices will go up to the point where Congress or the President begins to rumble about enacting controls. The price will drop back, but not to the prior levels of course. A year or so later, the price will begin to rise due to some imagined possibility of something happening. Every president since Nixon has promised to make us energy self-sufficient, and everyone has gone back on their word. We need to get off of this oil-based economy and find alternative sources of power. The auto industry does not want us to, because they make much of their profit off of selling products to keep the gas guzzlers running. They will not begin to provide fuel efficient vehicles unless they are forced to. The government during the 90's and the last decade gave tax breaks to automakers and owners to produce and drive gas guzzling SUVs. Watch the documentary "Who Killed the Electric Car?" It has some interesting information on what happened to the birth of the electric vehicle. Ultimately, we will be left behind by the Chinese, who are investing heavily in renewable energy such as solar and wind power.

  2. Mark B: Thanks for taking the time to make a long comment. I'm not sure what you mean by "artificially high." Investors buying and selling futures are not the oil companies. I do think these folks should be reined in and I think there was recent legislation or federal regulation to help deal with this. Yes, like all industries, oil, investments, futures, etc. play the game to maximize profits. If you were a CEO, I bet you would play the game too--everyone who can, does. In many cases federal regulatory agencies that are supposed to be protecting consumers or the public have been captured by the very interests they are supposed to regulate. We obviously need to tighten up on a lot of things. However, much of the problem is international markets, international events, etc. I again, strongly suggest Daniel Yergin's book "The Quest." Further you will probably notice that, in general, and long-term in this country as the economy declines, oil prices decline. People drive less, heat their homes less, run the air conditioner less, etc. This is the classic operation of the law of supply and demand. However, developments overseas sometimes are strong enough to trump this effect (e.g. Iranian threat to cut of the Straights of Hormuz. However there are no easy, simple answers or solutions. Domestic laws to control oil and gas prices will not succeed in overcoming the often unpredictable international energy market and situations. To blame "Big Oil," or speculators is an over-simplification. There are actually some problems that government cannot solve. Sometimes attempts to solve them. backfire. However, politicians get elected by promising things. When things don't work out as they promised, there is always a scapegoat. IMHO life is a lot more complex than a politican's one-liner.