American Elephants


High Gas Prices and Who to Blame: by The Elephant's Child

The price of gas at the pump affects the price of your groceries — which you have probably noticed are going up significantly. But the reasons for the hike in gas prices gets pretty interesting. According to the Daily Kos, it’s because of the oil oligarchs. The president claims that it is due to, depending on to whom he is speaking, oil company executives, undeserved oil company subsidies, and/or nasty oil speculators.

Bill O’Reilly said that “Right now we are all being taken advantage of by an administration that has an anti-fossil fuel agenda and an oil industry that manipulates the U.S. market. Who is looking out for us? Nobody.”

Investors says that “there are efforts to manipulate oil prices; That’s one reason why OPEC — made up mostly of Middle Eastern countries —was formed. But those are countries, not U.S. oil companies.

Carlos Ghosn, CEO of Renault-Nissan alliance points out that by 2050 there may be as many as 2.5 billion vehicles on earth compared with fewer than 1 billion now. China and India are expected to count for at least half of the growth by 2030. But the transportation sector is dependent on fuels derived from crude oil and will be for the foreseeable future.

The Heritage Foundation notes sensibly that: “We’re not anti- energy technology. We’re against wasting taxpayer money to “invest” in those technologies, including oil and gas. If it’s a market-viable idea, using federal money is offsetting private-sector investments. If it’s not a market-viable idea, we’re artificially propping up an industry until it goes bankrupt. Either way, it’s a raw deal for taxpayers.” But they also take notice of the Strait of Hormuz:

  • The Strait of Hormuz is a critical oil-supply bottleneck,
  • Iran probably has the capacity to significantly reduce the flow of petroleum,
  • Petroleum prices would approximately double while a blockade is in effect, and
  • The impacts on income, employment, and petroleum prices would linger beyond the period of a blockade.

The Gatestone Institute says short supply, not Middle East tensions push up oil prices. “Oil is trading in lockstep with expectations for economic growth, as reflected in stock prices. There’s not a shred of evidence that geopolitical uncertainty has added a penny to the oil price. Obama’s $20-$30 per barrel risk premium is a number pulled out of a hat, without a shred of empirical support.  In effect the president is blaming Israel for high oil prices.”

Mining.com notes that demand is down, but the laws of supply and demand aren’t working.  The price should be declining, but it’s going up instead. Two main forces are driving fuel prices upward in the United States: high global oil prices and the state of the U.S. oil transportation and refining industry. Stability of supplies from the Middle East is keeping oil traders up at night. Lots of good information here on the complexities of refiners, pipelines and transportation. But they still blame most of it on the Middle East.Saudi Arabia should be able to step up production enough to replace the lost volume from Iran if sanctions remain in place.

Steven Hayward suggests that the declining demand is a signal that the economy is headed down again.

Mr.  Obama’s FY 2013 proposed budget gives politically favored green energy preferential treatment over the fossil fuels industries, wit tax subsidies, tax credits, procurement preferences and grants, and in contrast burdens the oil and natural gas sectors with almost $86 billion in higher taxes over the next ten years. Fortunately both the senate and the House voted the president’s proposed budget down.

Here is my roundup of what state mandates and taxes add to the cost, but I’m not sure that I clarified anything. What is clear is that there’s a lot of finger pointing going on, and “experts” have lots of different answers.  The article by Mining.com does a good job of explaining the refinery and pipeline problems.

Meanwhile, for those who want to blame oil company ‘greed’ and ‘excess profits’, this graph explains profits by industry.

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