Oil Investors Drive Up Diesel and Gasoline Prices

Volume 1 Issue 3 - Opinion

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Oil Investors Drive Up Diesel and Gasoline Prices
Smart Energy Policy
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fuel-nooseSaudi Arabia, ExxonMobil, Warren Buffett: if you are an oil producer, retailer or investor, you have to be pleased with the recent jump in oil prices. It is, as Iago says, money in your pocket. More money for every barrel that you produce, sell and resell (at, of course, an even higher price). But you’re none of the above, you’re you, and each time you have to fill up that oversized tank with low-sulfer diesel, it feels that the noose closes a little more tightly.

In the Winter 2007 issue, I wrote of the likelihood of oil breaking the $100 per barrel mark some time this year. In hindsight, that prediction appears to have been cautious. We are well past that mark and the rise in oil prices has quickened, not slackened. Citing the current per-barrel price in the $130’s will likely date this article even more quickly than that one has already been dated. Investment houses are predicting that $200 per barrel oil is around the corner and other experts have said that $12 to $15 per gallon fuel prices are “inevitable.”

In an effort to help the GM diesel community, the maxxTORQUE staff has put together an article to help you maximize fuel economy (see page 32).

In this column, I want to focus on why oil prices have tightened around our throats. Some, not all, of the factors that are contributing to the frenetic rise in oil prices include:

  • Increasing demand
  • Stagnant supply
  • Decrease in US production and
  • Investors.

At the root of the problem is the fact that the world in which we live is consuming more oil than ever before and little, if any, additional oil is being produced to compensate. While there are promising discoveries in the Bakken fields of the Northern US and Southern Canada, US domestic production has actually dropped 50% over the last 20 years. Recently, US President Bush leaned on the Saudis to increase production. The Saudi response? The problem is not one of low oil stocks in the West but a weak US economy. The Saudis insist that raising production will risk a glut of oil that would hurt them and the other members of OPEC.

Supply and demand may lie at the heart of the oil problem, but it does not, alone, account for the current high prices. Oil no longer sails a straight line through the Suez to North America – at least not on paper. Investors, desperate to find a home for their money away from a free-falling US Dollar, purchase the oil in a supertanker and resell it to the highest bidder, betting on a jump in oil prices caused by the current high demand. This adds another middleman to the equation: another group that takes its cut and passes the cost on to you and me – we end up paying at the pump, at the grocery store, at the tire shop and everywhere else products are transported.


Reasonable, Minimal Action Toward Energy Policy

Whatever the reasons, until supply catches up or we come up with new sources of energy, prices will continue to rise. Simply producing more oil may not be all that is needed, since the demand for oil by China and India may rise faster than the increase in production. The solutions may be complex and risky but our way of life and the nation’s economic vitality depend on a secure source of affordable energy. How would an effective energy policy look for the USA? I do not pretend to know all the answers but the components listed on the next page would have to be included.

  • Increase US domestic oil production by two million barrels per day
  • Reduce oil consumption by a minimum of two million barrels per day
  • Pipe natural gas from Alaska via the Canadian pipeline to the USA
  • Rapidly increase the use of liquid fuels from coal
  • Increase bio-fuel production from non-food crops such as algae
  • Increase the use of all forms of alternative energy such as geothermal, wind and solar, power
  • Develop reliable electric vehicles for short trips in urban areas
  • Build 400 nuclear power plants over the next 10 years
  • Repair and increase the use of the nation’s railroads to reduce dependence on over-the-road diesel trucks
  • Form a government-sponsored consortium of engineers and scientist from all auto manufacturers to develop the next generation of vehicles
  • Review aviation standards to determine if a return to prop driven planes for some routes is more fuel efficient than short hop jets
  • Consider alternatives to plastic products such as glass and paper and demand recycling of all plastic materials
  • Invest in mass transit across the nation to reduce commuting to work by car.

Regarding number one: open ANWAR in Alaska for oil and gas production and tap into fields in the eastern Gulf of Mexico. Chevron recently discovered Jack Field 300 miles southwest of New Orleans which may contain as much as 15 billion barrels of oil. It’s reasonable to assume that similar discoveries are waiting off the Florida shelf. Drilling in ANWAR is only opposed by radical environmentalists who have drawn an emotional line in the sand to prevent opening an Arctic waste land for oil development. Imagine placing a postage stamp in the middle of a football field and you get an idea of the impact of drilling for oil on ANWAR.


us-on-highway-diesel-fuel-prices-2006-to-2008


Regarding number two, the US has a terrific record of conservation, reducing automotive consumption by 2.8 million barrels of oil per day from 1975 through 2000. Consumption declined by nearly 500,000 barrels per day in 2008. If Americans were to practice smart driving, we could be using one million barrels per day less by the end of 2008. By emphasizing diesel technology, hybrids and new, more fuel efficient vehicles, another two million barrels per day could be saved by 2015.

This is not a comprehensive list but these items, if incorporated, could produce energy enough to supply all the domestic requirements for a vibrant US economy and lifestyle. Somewhere in Washington, DC, there must be a politician who can take time out from a re-election campaign in order to consider a plan to meet this energy crisis. Congress finds time to hold hearings on the use of steroids among baseball players, but can’t seem to find time to deal with a true energy crisis – and the President has offered absolutely nothing. It appears the ship of state is adrift and no one is at the helm. We have precious little time to man the rudder and steer a course to safety. If we don’t move quickly, we may find ourselves ship wrecked. The solutions to our energy needs are not nearly as difficult as the search for competent leadership. As we work toward another election this fall, find out what your elected representatives and senators are doing about solving this energy crisis and vote accordingly.

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