Gas Prices Keep Climbing
By Alan Stewart Carl | Related entries in Economy, EnergyWith crude oil touching on $117 a barrel last Friday and retail gas prices in the U.S. now averaging a record $3.50 a gallon for regular unleaded, it’s looking more and more likely that gas prices will be a major campaign issue. It’s already voters’ second biggest worry after the economy. So what now?
Well, unfortunately, there’s not a lot the government can do to directly affect prices at the pump. John McCain’s gas tax holiday is at best a very temporary solution and, at worst, nothing more than pandering. But I imagine numerous voters would eagerly accept a price reduction, even if the plan behind it is economically unsound.
The problem is, we don’t produce enough of our own fuel and we have to share what is available with hungry emerging markets, primarily China and India. Those nations are only going to increase their demand and the OPEC nations are not planning to raise production. To make matters extra-special difficult, our biggest alternative energy solution, bio-fuels, has yet to lower prices and is causing a rise in global food costs. Wonderful. Neither the free market nor government-funded solutions have done much to keep us out of this mess.
The best hope is that we’re experiencing a commodities bubble not unlike the housing and technology bubbles. That would mean both oil and food costs are temporarily and artificially high and as soon as the bubble bursts, prices will drop. Sure, another burst bubble is the last thing the global financial markets need but at least this one would come with a very real benefit to average consumers.
I wish I could end this post with a pithy solution. But I can’t. All I know is that we should all be very wary of anything the presidential candidates propose regarding the cost of gasoline. Their “solutions” are more likely to be based on pandering. The reality is, no president will be able to do much to immediately stem the rise in fuel prices. Long-term plans are necessary. International cooperation is necessary. Private innovation is necessary. And, most importantly, an aversion to panic is necessary.
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April 21st, 2008 at 10:58 am
Open up offshore drilling just like every other country in the western Hemisphere, and build a new refinery. You would see prices drop immediately with all the speculation as soon as these options were ratified. Otherwise, democrats and environmental activists have no right to complain about this.
April 21st, 2008 at 11:05 am
Actually, supply and demand issues are only part of the problem. Part of it is also the combination of speculation, the futures market and large amounts of money searching for places to invest. A while back when oil was at about $105 a barrel an analyst being interviewed on one of NPR’s business programs estimated that the price that pure supply and demand would support at that point would be $85 a barrel. I think he’s probably right.
April 21st, 2008 at 11:22 am
Well if all we need is pithy, then we can invade Saudi Arabia. Problem solved. :-)
Seriously though, how about a little arm-twisting geared to OPEC raising production? Why not entertain some sorts of sanctions that have tangible benefits for Americans?
And even if you don’t like these ideas and/or think they’re irresponsible, still notice that just getting a candidate or two to mention such a possibility might have some beneficial effects.
You know what else would help gas prices? Stop lowering interest rates to spur the economy. Protect the dollar, bring it back up, and gas prices will go down. No one wants to pay that toll though. But I predict it doesn’t get better with gas prices until someone has the nuts to raise interest rates. Cheap money fuels speculation.
April 21st, 2008 at 11:29 am
We are paying $4.00/gal in San Francisco now and let me tell you, it hurts. The reality though, is that McCain is pandering in the worst way. We still pay less than they pay in Europe. Bottom line, it is indeed a supply and demand problem in terms of trying to reduce our demand fore foreign energy. As painful as it might be, the only answer to both reduce demand and make alternatives attractive on a cost basis, is for the price to remain high. Not to mention that road maintenance need the revenue from that gas tax. It is an all around bad call on McCain’s part.
April 21st, 2008 at 12:45 pm
I think a 1-day gas tax holiday is a decent idea. First, I’ll save some dough…we’ll all fill up that day. And #2 it’ll make folks aware of the tax component of the price. I don’t think McCain has suggested that this would “solve” anything. Who thinks that?
As fars as alternatives go, their ultimate arrival as viable-use products is a question of when, and the answer is “when the market shifts to the point where they are cost-effective.” That day could feasibly arrive on different sorts of time frames, and at various different levels of pain for everyday folks, depending on how we manage it. And to some extent, we can at least try to manage it with both domestic and foreign policy. When it comes to managing it via policies that capitulate to the greenest drain circlers, I’m not on board.
I’m not that thrilled by the idea of policies that seek to hasten the arrival day of alt-fuel dominance if that comes at the cost of making all of us pay a lot more a lot sooner. Why not encourage OPEC to increase production? Quite possibly, this buys us all more time while the alt technology continues to mature and becomes cost effective. In other words, I’ll be much happier if we all end up using alt fuels at $3.90/gallon in 10 years than if we start using alt fuels in 5 years at $5.50 a gallon. If the reason we are using alt fuels is only because their price has become more attractive than that of grossly inflated fossil fuel prices, that’s not much of a win for everyday folks, is it? In fact, it’s a big hit and regressive hit to the purchasing power of anyone on either a fixed income, a low income, or any low-growth income. Most of us.
April 21st, 2008 at 12:52 pm
I am pretty sure that the states mostly pay for road maintenance, the fed tax funds transportation projects for the most part. They need release about 15 million barrels of oil from the reserves and the states need to lower some of the tax burden. In Illinois the gas tax is 55 cents a gallon ! I think the biggest problem is a market with no competition. The big 5 oil companies run the roost and dont have mush incentive to lower their own profit margin.
April 21st, 2008 at 1:18 pm
I am surprised that people are shocked at high gas prices! Call me a cynic if you wish, but oilmen like Bush are well aware of the fact that if you want to make the price of that commodity go sky high, make sure you get a war going in the part of the world where production can be made unstable.
April 21st, 2008 at 2:04 pm
I love it when the GOP mouthpieces trot out these nonsense arguments. It’s so bad I hardly no where to begin.
Open up off shore drilling, they say…off shore drilling would only be needed if there was an inadequate supply of crude–there is not. There are always fluctuations, but none are justification for the outrageous increase in gasoline and crude oil. Twisting OPEC’s arm will not result in an increase in production because OPEC is pretty much at peak oil production as it is (although, this didn’t stop Bush from claiming in 1999-2000 that the oil prices were Clinton’s fault and if elected he would use his family’s good relationship with the Oil nations to improve things).
Build a new refinery, gosh darn liberals and environmentalists are to blame! Could someone show me one time–one time–in the last 20 years when an oil company wanted to build a new refinery and was turned down or prevented? It has not happened. It’s a total BS arguement. You can argue that building a refinery requires too much paperwork, or costs too much, but this argument falls on deaf ears when Oil companies are raking in BILLIONS of dollars a quarter.
The real truth that no refineries have been built is because Oil Companies don’t want or need to build them. Instead, for 20+ years they have been consolidating oil refineries or expanding them (which is not a bad thing) and cutting inefficiency so they have not needed to build any more. So please, can we stop this argument? It’s insulting to anyone who is paying attention, or embarassing to any idio who makes it.
As others have pointed out, our problem is that the dollar has fallen. Not only does the US dollar not buy what it once did, but because of this decline it has made other investments worth less. And who can we blamne the falling dollar on? Why, the people who enacted policies designed to push the value of the dollar down.
We also have an erratic investment market with too many dollars chasing too few investments. No one has confident in the markets, and that is a direct reflection on this administration
Instability in the middle east…agee I wonder who who to blame for this?
April 21st, 2008 at 2:41 pm
January 2009 cannot possibly get here soon enough!! I remember when I could fill my 12-gallon car for only $20. Now it costs me $40, and I’m dreading the summer price hike that I know is coming.
I live in Kansas City, and our public transportation system is basically non-existant other than the metro buses, which don’t connect to where I need them to go for work and school. It makes me want to buy a bike and just suffer through the 20-mile ride to work. It would be free, and I’d be skinny in a month!
April 21st, 2008 at 3:28 pm
In fact oil companies shut down refineries to drive prices higher on purpose back when oil was cheap. In Arkansas City, Kansas a refinery was closed in spite of the fact that the locals who didn’t want to lose the jobs found a buyer who would keep it open. The KC Star did an in-depth article on it a couple of years back.
April 21st, 2008 at 6:23 pm
Good points here all around. Two things come to mind: in the first years of the Bush admin he gave a motivational speech about the importance of investing towards a trip to Mars, of all things. (I wonder how many campaign donations that repaid) If only they had the foresight to instead begin a national program for alt fuels.
Secondly, I’ve heard that GM will have a hybrid -electric plug in and gas- on the market by 2010 that will do up to 80 mpg. That’s only 2 years away, much sooner than bio fuels will get up to speed and become cost effective. Are we doing as much as Europe to increase gas mileage? There’s a big fuss when we get large increases, then we get complacent and simply buy a smaller SUV. BTW, you can’t compare European gas prices to ours. They subsidizes many social programs with gas taxes, and thus get things like free college tuition.
April 21st, 2008 at 7:42 pm
I’m surprised I’m the first foreign asshole who posts to tell Americans to buy smaller cars!
rant - We pay %%% more for our fuel, you yanks should be grateful you only pay $3.50 a gallon - end rant :-)
April 21st, 2008 at 8:47 pm
Adam, just because we have some affluent people driving around in Monster SUVs does not mean that everyone does.
As for paying more–well, that depends on where you live. The price of gasoline in Belgium, before taxes, is 3.32; the price in France is 3.28, the price in Germany is 3.18, the price in Italy is 3.61, the price in the Netherlands in 3.85, the price in the UK is 3.09 and the price in the US is 3.21
These numbers are before taxes are applied.
The difference you see (and they are quite substantial in the $5 and up per gallon range) is because many of these nations apply huge taxes, in part to subsidize public transportation, but also to subsidize other spending.
Supposedly, you are gettng some service for those taxes, but the actual price we are paying per gallon is about the same. And yes, you are paying too much for the same reason we are.
April 21st, 2008 at 9:14 pm
Nice data gerryf.
I’m from Australia and my wife’s from the States - fuel prices are always a fun thing to poke my inlaws with, and they reply by laughing at how expensive cars are here (~20%-30% more than the same models sold in the USA).
April 21st, 2008 at 9:14 pm
Not everything is being done that is technologically possible largely because of economic constraints. Many European cars use clean diesel engines that are more fuel efficient than their gasoline counterparts. The car companies don’t want to retool to produce those engines here and the oil companies don’t want to do the refitting that would be necessary in their refineries. There isn’t nearly enough research being done in basic materials science and how to then move any discoveries in that field into production for reasonable prices, which would allow vehicles to become lighter while remaining safe. There are many other technologies that are just around the corner, some of them being more a case of how to put them into affordable production than building them to begin with. Once those hurdles are overcome the next important thing is to encourage people to buy them sooner rather than later, something that could hopefully be achieved with well publicized tax incentives.
April 21st, 2008 at 10:12 pm
Jim S. — I agree with everthing you wrote in the above comment. Progress is being make taking new renewable energy technologies to commercial scale and viability. It is a messy, geographically patchy, volatile market in its infancy stage. (Please see “Wind” without the production tax credit.) But it is growing everyday. You are also correct in the European’s time advantage. They are 10 years ahead of the U.S. in renewable technologies across the board. But, they don’t have near the natural resources that US brings to bear. It is an exciting time to be in the renewable energy industry, even given its many challenges. Diesel and electricity are the way to go in terms of cars.
April 22nd, 2008 at 10:36 am
My favorite is the system where there is no one engine, rather 4 small but powerful electric engines are built into the wheel assembly and coordinated by computer. Then you have batteries and a very small engine that can run on almost anything that kicks in to recharge the batteries if needed on long drives. Think how much weight that eliminates. Not only no large metal engine but no large exhaust system or transmission.