Sunday, March 16, 2008

THE TRUTH ABOUT OIL PRICES

Blogger's Note:  On first glance, it might seem that the subject of this entry would make it more fitting material for my political blog, but I have decided to post it here instead, because of the impact on my profession -- trucking.    L.J.W.

 

It was warmer everywhere I went this past week and it looks like, finally, spring is beginning, after a particularly harsh winter. With the warmer weather, of course, will come the annual blooming of orange construction barrels all over the place -- the surest sign to truckers and motorists that the seasons have changed. And, as we move toward summer and the annual travel season's beginning, we can all look forward to the grim prospect of higher gas prices, which will, without a doubt, soar to more than $4.00 per gallon in no time at all.

Diesel fuel, which Big Trucks run on, has already reached that level in some states, as I observed this week. Pennsylvania and Illinois are two examples of states that are already over the $4.00 diesel price. Most trucking companies don't pay the pump price, of course; they get sizable fleet discounts from the major fuel suppliers. But it still hits them in their wallets, just as it does everyone who purchases fuel. The owner/operators are hurting the most, because in spite of the fact that many get some kind of discount from the company they lease out to, fuel is still largely an out-of-pocket expense for them. Fully independent truckers, who are few and far between these days to begin with, will grow even scarcer in the course of the coming year, as fuel costs prompt them to hang it up, sell off their trucks, and find another occupation to provide them with an income.

The "blame game" has already started, but it will hit high gear a couple of months from now when gasoline prices reach the same level as diesel fuel already has. That long summer vacation trip don't look quite as hot when you're paying $80 a pop to fill your SUV's gas tank, does it? The finger-pointing will begin in earnest and, as always, the primary target will be the oil companies -- those "evil," greedy companies, with their humongous profits who produce the product that everyone who drives any vehicle with an internal combustion engine absolutely needs. The media will drive this anti-oil company fervor by ranting endlessly about the size of those profits and elected officials in Washington, especially those on our political left, will point their fingers and threaten to tax the profits, or cap the price of the fuels they produce. And now, with Democrats in control of Congress, they may just do it.

Big mistake, if we consumers allow them to do that, because history will repeat itself and the result won't be pretty at all. Anyone out there old enough to remember the oil crises of the 1970's? Remember sitting in line for hours, to get a few gallons of gas in your car? Remember gas stations being closed altogether because they had run out of fuel? Remember the alternate fuel-purchasing days (a form of rationing) that occurred in some places? Remember then-President Jimmy Carter's "Windfall Profits Tax?" And, if you think back really hard, maybe you'll recall that those gas lines, closed stations, rationing, and the other miseries didn't begin until Carter signed that tax and other oil price controls into law!  You might also recall, if you think long and hard enough, that the misery went on unchecked until 1981, when President Ronald Reagan, with one stroke of his pen, repealed that tax and all the price controls, so that the market could again work as it was supposed to. The gas lines disappeared overnight, the supplies flowed again and the misery of the '70s was over at last.

In Reagan, we had a president who understood Basic Economics 101 and pulled us out of the mess we were in. He understood the Law of Supply Versus Demand, and how that simple law is the very foundation of our economic system. Reagan knew that when the government interferes with the natural order of things in the economy, it will always result in a shortage on the supply side, as the suppliers cut production in order to hold onto their bottom line. Reagan also fully understood that such government control always results in a dramatic increase in price, as the commodity that's in short supply becomes more valuable. So, Reagan had the wisdom to remove the artificial controls and let supply and demand work in the natural way that it's supposed to.

That crisis ended with Reagan's actions. But now another crisisis looming and many in the government want to do the very same thing Carter did, which will have the exact same results, and millions of unsuspecting Americans, hurt by the high cost of fuel, actually favor their doing so. Some are too young to remember the crunch of the '70s, and many older people have simply forgotten about it. Times have changed, since the Carter/Reagan eras, to be sure, but Economics 101 is still the same as always and a profits tax, or other artificial government price-fixing, is most definitely not the answer. As always, when the government tries to "fix" something, it only succeeds in making things much worse. Until people finally learn that truth, history, I'm afraid, will continue to repeat itself, as it is poised to do right now.

If you want to see the full result of government price controls, you need look no further than Europe, where fuel prices have hit the average equivalent of $9.00 per gallon. We can all take some comfort in the fact that it's still not nearly that expensive here. In most, if not all, of the EU countries, the oil industry is nationalized, which means that the government has taken over complete control of it altogether. Five dollars difference in the price, when the government takes full charge. Don't want that to happen here, do you? Then by all means, don't let the government ever, ever, get control of it, because Europe is your example of what happens, pricewise, when it does so. Things go from bad to worse, just like I told you.

When the government takes control, they can shift the price up or down at will and the direction will definitely be upward. This increase, in America, will be to appease the environmental lobby, which really wants us to stop driving completely. These lobbies are rolling in money, which means that they have great influence in Washington and can get laws and regulations passed which impose their will on all of us, who have next to no influence at all. Our government isn't one of "By The People" anymore; it's become one of "By The Special Interests Who Have Lots More Money Than You And Me." And our public officials, of both  political parties, are the best money can buy, let me tell you that! If you believe otherwise, then you are hopelessly naive.

So, you're probably  wondering now that if I'm right, and government intervention is not the answer, then what is the solution? To get to that answer, it is of primary importance to understand why the price is so high to begin with. And it isn't just oil company greed. Forget that.

One factor is OPEC, or the Organization of Price-Extorting Criminals, as I prefer to call them. If anyone involved in the fuel price game is to be labeled as greedy and evil, this collection of oil barons deserves the title richly. Composed of representatives from all the nations who export crude oil to the refineries around the world, many of whom are most definitely not friends of the United States, this organization can, and does, on the slightest whim, raise or lower their production. This, in turn, moves the going rate for crude oil to higher or lower levels, as the case may be and as it suits OPEC's interests. Lately, they've been tapering off on production, driving the price-per-barrel up to record levels. The sheiks and other oil fatcats must want newer model Rolls-Royces than they already have, or some more golden commodes, or indoor ski resorts.

We're stuck buying about forty percent of our oil from OPEC nations. Although most of our imported oil comes from Mexico and Canada, their prices are set by OPEC agreement and our oil companies have to pay the going rate for it, which may change on an almost daily basis. They get no price break on it and thus must pass the cost on to the consumers -- us, otherwords. That much is just simple business economics, virtually the same as trucking companies passing their fuel costs on to the customer in the form of surcharges. There's not a lot we can do about OPEC; it's their oil. If we want it, we pay their price, or do without.

But as if OPEC's not enough to drive the price upward all alone, here comes our own federal government. and their obsession with regulations and taxation. The oil companies don't make their money at the pump. They never have and never will. Their profits are made at the refineries, where the crude oil is converted into gasoline, diesel fuel, and other products. Oil companies only average about eight cents ($.08) in profit per every gallon of fuel they sell. The federal government, alone, takes eighteen cents ($.18) on  every gallon -- a full ten cents more than the oil companies are making. You tell me who's doing the gouging here?? And some in our government want to raise that tax take even higher??!! Give me a break!!!

Oh, I know -- the government spends the tax money on roads, and so forth, blah, blah, blah. Heard it all before, but it won't hold a lot of water. Roads are built and maintained by the states and municipalities. Show me one road that the federal government has ever built or maintained. Go ahead -- show me one! You can't, because the federal government doesn't build our highways. Yet they add their eighteen cents worth to every gallon of fuel that's sold. Who should one logically be the maddest at? The oil companies, making their eight cents and giving you a product that you need? Or the federal government, taking eighteen cents so they can blow it on studying the effects of cow farts on global warming, or some other worthless foolishness?

And what about those humongous profit margins that the "evil" oil companies are making? The profits that the media and politicians rant and rave about so much, trying to turn all the blame on the oil companies? That profit margin wouldn't be nearly as high, if the oil companies reinvested some of it in things like new refineries, and exploration/drilling in the ANWAR in Alaska, and other domestic oil sites, such as in the Gulf of Mexico, off the coast of Florida.

Virtually all companies reinvest part of their profits in their own businesses; that's how they get much of the capital they need to build new plants, new stores, and to expand. But the oil companies aren't allowed to reinvest theirs, as the federal government has forbidden them to build any new refineries, or explore and drill domestically, all at the behest of the environmental movements, with their cash and political clout.

The fact is, the federal government is responsible for those profit margins being so high, in the first place!  And then, of course, the leftist politicians and the media can then find plenty of ammunition they can use to demonize the oil industry with. They simply "forget" to mention that their own regulations help drive those profits up  to such record levels. Because they don't want us to realize that. They want to make us hate the oil companies, and with all too many people, they are succeeding grandly. 

I've often wondered how high the price will climb before people finally catch on, tell the "greenies" to shut up and sit down, and demand that we build new refineries and drill domestically? Five dollars a gallon? Six? New exploration and drilling, and new refineries are the solution to lower prices and end much of our dependence on imported oil for years to come. Let OPEC see that we are going to do this and watch how fast their crude oil prices drop! It will amaze you! When we no longer need their oil, they will be willing to make us a deal. You can bet on it.

Our own oil industry can bring about lower prices, if we let them; it's just a matter of educating enough people about the truth. Oil companies aren't evil; they are just businesses like all others, producing a product that is vital to us all. Maybe now some of you readers won't jump to conclusions when the media starts bashing them again. Maybe some of you will ask your elected officials why we are letting Cuba and China drill off our coast, and we're not out there claiming our share of that oil. Just the truth and something to think about.

10-7

4 comments:

fanofheartbeats said...

Alaska needs to be more involved in bringing oil and natural gas to the lower 48.. given their current state of mind there this may happen as new administration comes in in DC..  Not so much oil as natural gas.. if we could devote a bigger % of oil strictly to fuel tanks of vehicles instead of heat sources and other uses that would help a lot.

I have very strong beliefs about this but prices are going up across the board and I live on disability and not by choice. But I'm not naive enough to think that one voice will change the world. So I count my money carefully, and talk with you once in a while, use CNN as a sleeping pill, and do what I can.

Talk soon, be safe out there

jeanniebuggz said...

As were discussing today, its not just the oil prices that are continuing to rise but also our one necessary need, our food supply. Maybe a new administration will change a lot of things.  Hope so!

angelsfaceme1 said...

Dawg,
     Once again you hit it right on the head. Boy, do I remember the 70's. I almost got shot by the police for syphoning gas out of one of my cars for the other. You would have thought I was robbing a bank, But as those of us old enough to have lived though it that was one of the problems. People stealing gas from other peoples cars. At least in Chicago it was a problem.
  Someone once said to see our future you need to look back at our history, to ignore it, is to repeat it. I hope people open their eyes and start using their voices or we will be paying $9.00 a gallon.
     Really a great entry. My hubby is an owner/operater so we really feel that crunch and I am always looking for the cheapest fuel. Hard to find. Here in Illinois diesel was at $4.27 on Sunday. I don't know how they expect people to survive with those prices. Oh, wait, I forgot, they don't care. I bet they will care when deliveries stop or are late. Be interesting to see what happens then.
     Take care and keep your Angel in the jump seat.
                                                          Hugs, Cyndy

tsalagiman1 said...

Great entry and right on target.  I remember the 70's and the gas rationing, long lines, and times when you couldn't find any gas at all because stations were out.  I wonder how long the young people supporting Obama would last if we did it again?  A commenter below mentioned the rising cost of food - that's because not only due to increased transportation costs, but mainly due to the demand that has been placed on corn for the ethanol nonsense.  Didn't work in the '70's, won't work now.  Our entire world economy is oil-based, and that won't change anytime within our lifetimes.  We can't conserve our way out of problem.  The ONLY answer is to increase production.

Dirk