I do not pretend to understand exactly how the world oil market works and judging by comments from various economists (professional or otherwise) and politicians, it would appear I’m not alone. What I do think is clear, however, as world oil prices remain relatively steady and gasoline prices continue to rise in the US, is that market forces are at work producing these record-high prices at the pumps that could adversely impact the overall US economy.
Not long ago, there was an e-mail making the rounds encouraging consumers to refrain from gasoline purchases on May 15 in an attempt to force a supply glut, deny the oil companies some revenue, and ultimately push down the price of gasoline. The problem with such an idea, as nice as it may have sounded, is that it would only force some to buy gasoline on May 14 or wait until May 16; consumption would not have been necessarily affected, and market forces are all about supplying a demand.
Another e-mail that is still making the circuit is one that calls for a boycott of Exxon/Mobil stations in favor of any other company in an attempt to force a price war. This could have limited affect on pump prices only because consumption will presumably remain the same. Considering that there is likely a rather complex – if convoluted – refinery market also at work, it is unlikely that Exxon/Mobil would not be able to sell or trade their refined products one way or the other.
With the Memorial Day weekend approaching, there is speculation that consumers have no intentions of staying home but may still choose shorter trips in an effort to save on fuel purchases. In the end, however, I would submit that consumption will still spike because of the added trips that might not normally be taken on other shorter weekends.
The US House of Representatives recently passed a bill (345-72) sponsored by US Rep. John Conyers, D-MI, that would allow the US government to sue OPEC under US anti-trust laws in spite of the fact that Energy Department representatives testified that world oil prices have had little effect on US fuel price spikes in the last three months. These spokespersons reminded the House that increased consumption and increasing demand is a major contributing factor in the increasing prices at the pump along with US refinery capacity that cannot keep up with steadily increasing consumer demands as well as the annual switch from winter to summer blends and future demand speculation. The bottom line is that the consumer does indeed have the last word on gasoline prices, and our word seems to be, “MORE”; artificial manipulation of the market by government intervention will not resolve this.
The House bill has a nice ring to it and there can be no doubt that OPEC is a potent enough force to manipulate world oil prices, but there can be trade ramifications as pointed out by the White House. Since we already know that OPEC can manipulate the market, how can we believe that OPEC will somehow stop manipulating the world market under the threat of US legal action? Surely the US is not OPEC’s only trade partner.
Hence the White House objection. If OPEC’s trade with the US is adversely affected by congressional action, one of two things could result: OPEC production could be curtailed thus resulting in higher prices, or OPEC could boycott the US market altogether thus also resulting in even higher prices and outright shortages which would likely produce disastrous results for the overall US economy. It might also be remembered that in the 70’s as fuel prices continued to climb as a result of OPEC’s actions, this nation responded with the Windfall Profits Tax against US energy producers the results of which were even greater dependence on imported oil (extending even to today) because US producers found it cheaper to import rather than explore, develop, and produce domestic resources.
Energy companies have been reporting record profits since fuel prices began to spiral out of control, so it goes without saying that any congressional action with an appearance of “fighting back against big oil” will be met with tremendous public approval which could reap huge political payoffs in the next election year, but it will accomplish little else. The bottom line is that consumption is the key to record-high fuel prices and will continue to be so for as long as our perpetual thirst for gasoline exists.
2 comments:
The bill that allows us to pursue legal action against OPEC is nothing but political gesturing. Even if we pass it and proceed with a suit how might we pursue collection? And who do we think is Big Oil in the world? Our American Corporations are the one's that hold the strings in the World Market. With their tremendous lobby they have squelched the development of alternative fuel sources for our country. It may seem that the consumer has a choice in this matter but in a country that has been built for individual travel and only has a handful of large cities with public transit there really isn't many logistical choices.
Even if consumers had the "choices" where economy is concerned it would still result in a dramatic change in our national economic profile if consumers did make choices on a mass scale to use less fuel. The land of the global corporation is being held hostage by their interests.
What to do? Vote out perenial politicians. Commit to voting in representatives that will hold the interest of those that elect them and not big lobby. In a matter of two to three Presidential elections.(8-12 years) The people could vote out senators and representatives that have become indoctrinated to Washingtonian Government and focused on the interests their local constituencies. Then we have to have a concerted effort to keep turning over the political machines. Term limits should be shortened so that the maximum any particular individual can serve in the congress is 7 years. In the coming months politicians are going to want to focus on a beautiful future and a glorious vision. However the reality is that we are in a sinking and stagnated system. Be it Democrat or Republican these two parties have defined "career politicians" which has cost the masses legitimate representation in the federal government.
Consumers can affect a change in time by using the single right they have left to make an affective change in the government who is in bed with large corporations.
JP
Whew! Well said. While I don't necessarily agree with term limits, I do agree that career politicians play a large role in much of what is wrong with our political system. And you are absolutely right: being Democrat or Republican is irrelevant!
Thank you for your comments. You've given me a lot to think about.
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