Like most Americans, I admit that I am angry about the raping we are taking at the pump and how, over the last five years the price has steadily risen. The marker for me was when I lived in Washington D.C. and hurricane Isabella hit in late 03'. There was a spike in the cost of petrol; it went up to a whopping $1.50/gallon, plus or minus. I thought, "Oh my, God! How will we survive?" Then things stabilized and Katrina hit the Gulf Coast, my present home. Well, we all know the story from there.
While I am angry, I have also been fascinated by this industry and how out of control they have become. You have a whole laundry list of companies, cartels, and countries to choose from to place the blame. But before anyone can do that you have to understand why things have become like they are and what solutions are actually viable in the short and long run.
First, you must examine the web of intrigue that might have created this conundrum. We have heard everything from OPEC, to oil drying up, to speculators. Like everything, there is a little bit of truth in all of them.
For years, the chicken littles of the world, have been claiming that oil is drying up and that was the reason given to find alternative energy sources. While alternative energy sources are not a bad idea, the whole concept of oil drying up is alarmist and based on little fact. Even as far back as 1875, John Newberry the chief geologist for the state of Ohio predicted that oil was running out. In 1979 the Carter administration echoed the findings of a C.I.A. assessment that oil wells were drying up all over the world. Based on the technology of the time, with regards to exploration and drilling techniques, the C.I.A. was correct to a point. We were only able to achieve a certain depth for drilling and exploration. Now, times have changed quite dramatically.
Then there is OPEC, our favorite arch nemeses. OPEC does have a hand in this problem that is facing the American consumer. It comes down to supply versus demand and how much oil you will let flow. Simply put, if you constrain the amount of oil production, you drive prices higher. Sounds easy enough to pin the blame on OPEC, but the problem is, it isn't that simple. In 1980, the cartel pushed for $40/barrel. The general idea was that they could attain an even higher price based on supply and demand, but the rate of consumption fell dramatically. This greatly cut into OPEC's profits and resulted in them lowering the price. So, why isn't that happening today? This is where the analysis starts to sting us as Americans. Two of the problems are our mindsets and lifestyles. There are far more vehicles in the States these days and we have become accustomed to being able to move around as we please. In order to put the squeeze on the OPEC problem you have to be willing to limit your movements and become more dependent on less luxurious ways to get to where you need to be (i.e. public transportation, car pooling, etc.). Not so glamorous, but an effective tool, or weapon, that can be used against OPEC to increase the flow of oil. If they gouge you, gouge them back by cutting the usage of oil as much as possible.
After OPEC, what is left? I would love to stop there, unfortunately the trail continues on. There is much more at work here than just supply/demand problems. You have the speculators. Speculators are people who deal in the futures markets and are highly unregulated. They can manipulate a market to achieve a certain price without regards to supply or demand. Unfortunately, one of the only solutions I see is government intervention and forcing a certain degree of transparency on the industry. Yes, I know the government sticking its nose into the free market. But applying Burkean Conservative thought to the whole situation, government regulation does not look so bad. As I am fond of saying," You have to find a balance between the needs of the individual and the governing authority." Right now there is growing evidence that the individual consumer is being taken advantage of, to some degree, by forces that are beyond their control. It is the government's responsibility to protect the American consumer, when this point is reached, and the only way to do it is force some regulation on a community of people who are taking advantage of us and our families. There is a great need for a Theodore Roosevelt and a Square Deal initiative.
There are many players in this saga and I have probably on touched on two at best. Right now, all any of us can do is tighten our belts and get ready for an uphill battle. Most pundits on this subject feel gas prices are going to rise, a major correction not withstanding. Hopefully, a solution can be reached that might alleviate the pain at the pump for the short term and maybe some innovative thought can be given to a long term solution. Either way, it will be both interesting and expensive.
P.S. Stay tuned for the continuation of the Oil Diaries. Next epsisode we will examine the possible short term solutions and fixes.