Friday, March 2, 2012

A crude way to live

With oil prices spiking left and right, it's become a blame game in Washington as politicians try to capitalize on people's struggles in order to discredit their opponents. Just as a side note, it's interesting that that is the first reaction of politicians, rather than a feeling that they should do something to fix the problem.

The pervasive idea is that this is all Obama's fault, that if he would just let us drill domestically, or allow the Keystone Pipeline to be built, we would be swimming in $2/gallon gas right now. Of course, that's overly simplified, and in many ways downright wrong.

First of all, the President, no matter who they are, has very little to do with the price of oil. They can sign all the drilling permits they want, open up sensitive ecosystems to be sucked dry by our drills, and disrupt marine wildlife in entire swathes of ocean, and it won't help the price of domestic gas. Why? Because all of those permits and drills and rigs are privately owned by companies who are going to refine their crude and then sell the oil on the global market. That's right, all of the oil that America produces domestically goes out into the world to be sold for huge profit by the oil companies that produce it. The US has to go into the market and compete with other nation's for that oil, which is part of the reason the price has gone up.

Here's a list of reason's the oil prices are going up, and why they are so volatile at all.

1) Demand. As the world becomes more industrialized, more countries start buying up oil, which puts a strain on the supply being produced globally. In particular, India and China are both booming and starting to siphon huge amounts of oil out of the markets, which raises the price on what's left.

2) Profit. There's a huge amount of money being made by a lot of people, and they are very hesitant to let that go, even if it would mean higher sales because of lower prices. Companies like Shell, BP, and Exxon are raking in the cash because of these high oil prices, and they probably don't want to see a drop in the costs anytime soon.

3) Speculation. More than anything else, this is what drives the cost of oil. This is due to investors on Wall Street and in the oil markets betting on the price of oil, and on oil futures. Whenever a man sneezes on an oil rig, they hike the price a few cents. When something catastrophic happens, like this crazy story about a pipeline blowing up in Saudi Arabia, the price spikes crazily even if nothing actually happened. Why? Because it's the job of these investors to predict what will happen to the price of oil and get it to move before there's a change in the inflow/outflow of barrels.

4) Unrest. With Syria engaged in a civil war, and Iran threatening atomic weapons, it's no wonder there is concern about the oil fields in the Middle East. While OPEC countries are still churning out the black gold to the tune of millions of barrels daily, the increasing volatility in the region has sent speculators scrambling to push the prices up.

In terms of presidential influence, Obama could sign more drilling permits, he could open more lands to drilling and speculation, and he could promote domestic energy policies. But as I've said, doing that probably won't do much other than line the pockets of the oil companies even further. The only way to bring the costs down permanently is to decrease our dependence on oil all together, which is why we need alternative fuels and more fuel-efficient cars. Those are solutions that Obama is already pushing. I think he's going in the right direction, and is looking at the next 10-20 + years and seeing that this is the only solution that makes sense.


samp said...

Good analysis. I do however think you will see that you will be hard pressed to afford Mr. Obama's "green energy plan now and in the future. Sadly, this oil issue is playing right into his hands to push for green energy sources. IF green was so good why can't industries survive in the free competitive marketplace? These green companies are getting huge government subsidies and still they do not make it. What does that say about them without the government "bailout"? IF these companies were such a great thing wouldn't you think that private investors would be flocking to them to invest? (that way it should be). Just try and afford a Chevy Volt. Only the well off can afford one and they get some kind of government allowance of about 5G to 10G for buying it. The people can afford it get the money. We ordinary people would IF we could afford the car in the first place but we can't. So, you tell me what has changed under Obama'S green energy plan? AND finally these great cars get what 50 miles to the gallon? Where do you "plug" the electric cars in for the wonderful 40 to 50 miles you can travel between charges..IF you could charge them at all and what cost to recharge; how long to recharge etc. Like everything else this President does way too any unanswered questions for me...that' the same issue I have with the Vermont healhcare takeover...way too many unanswered questions

Chain-thinker said...

@ Samp, you raise some good points. I don't have answer to a lot of them, but I can answer a few. First of all, green energy companies in America suffer from the same issues that other companies in America do right now: there are cheaper versions being imported from China. Like any startup, the initial costs for US-made green energy systems is high. In China, they've been making solar panels for years, so they cost much less. Domestic green energy companies can't compete. Investors know this, so they don't put their money into it, even if it would help the US economy.

The same issue goes for electric cars. Back in the early 20th century, a competitor to Henry Ford developed a car that ran without gasoline. Henry Ford bought him out and killed the project. The only reason we're not driving without gas today is because we have not invested the time it takes to develop a cheap, dependable technology. Consider computers, which have become cheaper, faster, and more powerful in the last two decades. It took a good 20 years of constant upgrading, R&D spending, and commitment to bring us the computers of today, but they came. We have to be willing to make an initial investment if we want the results. High-cost vehicles that are more fuel-efficient are a starting point. They will get better, cheaper, and more desirable as time goes on.

And as to where you can plug in your cars and for how much, I've seen at least one public car outlet in and around town. It's relatively cheap to charge a car than fill it with fuel, especially if the electricity source is green as well such as solar.

Finally, you have accept that there are some things we just can't know. But how is the President in charge of knowing what the charge cost and time is for a vehicle produced by a private auto manufacturer. Isn't it Chevy's job to make that information known?