Why Oil is really so expensive

[Greebo]

I hope this is the appropriate forum - I hope so since gas prices seem to be creating a lot of hardships for people. I wanted to post this just as an alternative view (and one I personally think is more correct) regarding why oil has gotten so expensive, and why its not always a good idea to trust Government's explanation of things.

Presented as food for thought.

This article comes from the Ayn Rand Institute.

Investigate Big Congress, Not Big Oil

By Alex Epstein

With gasoline prices exceeding $4 a gallon in some states, politicians are responding as usual: Blame Big Oil First. Several prominent senators have once again summoned industry leaders to Capitol Hill, subjecting them to yet another barrage of rhetorical questions, interruptions, accusations, and sermons. The lawmakers' goal, claims Sen. Patrick Leahy, is to identify "causes of the rising price of oil on which Congress can act." But the foregone conclusion is that "price gouging," "collusion," and "market manipulation" by Big Oil, or speculation by financiers, is responsible.

The simple fact that such Congressional investigations are designed to obscure is that the prices of oil and gasoline are determined by supply and demand--which neither private oil companies nor speculators have any power to dictate in their favor. If they had such market mastery, then why didn't they use it in the 1990s, when gasoline was selling at a barely profitable $1 a gallon? To be sure, speculators can bid up prices--but they only do so when they believe that oil will become even more expensive in the future, and only make money when they are right.

The question Congress should really be asking, then, is: What nonmarket factors are distorting supply and demand? If they sought an honest answer, they would discover that much of the blame lies with Congress itself.

No one disputes that environmentalist laws passed by Congress have cut off some of our most promising and plentiful sources of oil. In the name of safeguarding a tiny portion of caribou habitat in the Alaskan wilderness, drilling is prohibited in the Alaska National Wildlife Refuge--a potential source of 1 million barrels a day, 5 percent of America's daily oil consumption. Also off-limits is 85 percent of America's coastline, which Shell estimates contains some 100 billion recoverable barrels--13 times America's annual oil consumption--and the vast majority of oil shale in Colorado, which Shell estimates at 1.5 trillion barrels.

Congress should publicize these facts, prepare an inventory of how many oil-rich areas they have blocked off, and bring in economists to estimate how much all of this raises gas prices.

And how about the effects of Congress's open hostility toward the future of oil? Our politicians damn oil as an "addiction" to be eliminated, and seek to cut--by up to 90 percent--the use of oil and other vital fossil fuels that make our standard of living possible. Congress should ask oil executives how this possible forced cut in demand affects their industry. It should ask whether they feel safe to make the billion dollar investments and decades-long plans that oil production requires when Barack Obama, a leading presidential candidate, can uncontroversially proclaim that "the country that faced down the tyranny of fascism and communism is now called to challenge the tyranny of oil." Is it a coincidence that the much-maligned speculators think oil will become even scarcer in the future, and are acting accordingly?

In addition to investigating its own impact on gasoline prices, Congress should investigate how its economic policy partner, the Federal Reserve, has raised our gas prices by lowering the value of the dollars we buy gasoline with. The Fed, along with the Treasury Department, has for years had an inflationary policy that has caused the value of the dollar to plummet relative to other currencies. Were it not for this devaluation of the dollar, oil prices would likely be 40 percent lower--as they are for those on the Euro. Why not call a free-market economist to the stand and ask how much more expensive Alan Greenspan, Ben Bernanke, and Henry Paulson have made our gasoline?

Americans deserve to know the story--in all its gory detail--of what their government has done and is doing to cause high prices at the pump, and to make gasoline--indeed, all energy--more scarce and more expensive in the future. A congressional investigation of Congress would be a great public service.

[Frugal Nurse]

Whoa nellie!!

Git m'horse! I'm galloping to the state senate office!

That is crazy! Although, not surprising!


Before I can make an intelligent comment, I'd have to know who Alex Epstein is, his standing and position, and his source of information.

But.... reading just this article in and of itself, and being a treehugger too... I shall point out that it states ...."safeguarding a tiny portion of caribou habitat in the Alaskan wilderness, drilling is prohibited in the Alaska National Wildlife Refuge--a potential source of 1 million barrels a day, 5 percent of America's daily oil consumption".
It is just a tiny part of habitat. AND it is only a potential source. They have to drill and drill to find the source. Keep the habitat a habitat.

Same is said for the off coast - it is estimated it's there. Is it worth the drilling? Actually, I don't think much of the landscape will change on an ocean. I could be wrong though, because I never took marine biology. I say... go for it.


But without knowing too much about, I can say.. I wouldn't trust SHELL's estimation- that's for sure!

And a final statement from me I'd have more sympathy and concern if the oil companies weren't making such a HUGE profit. They're gouging and we're catching on. Ditto on the government.

And one more thing!... thank you for the article. I think it's important that all sides of the situation be viewed.

[Ceashels]

Wow, that certainly is a lot to think about.

I think there is a delicate balance between environmental protection and the need for prospect drilling. Land drilling would certainly cost habitat for land animals but off shore drilling would only cause significant problems to habitat for the construction phase, barring any tremendous oil leak that would destroy miles of coastline and wildlife habitat.

I also think that gov should not be involved as directly as it is in business. Granted, I believe our gov should appropriately set guidelines for the states to follow that maintains a standard for all states in the Union (such as education, environment, health care, etc.). But I have a difficult time believing the gov should have its hand in the till as much as it does. It doesn't belong there.

[Greebo]

With regard to oil company "gouging". The major oil companies make a profit margin of around 8 to 10%. This is a very small percentage for a profit margin compared to other industries. The tech industry, for example, frequently has profit margins in the 20s.

The oil companies are making record profits, true - oil's price goes up, the mark-up in dollars (not percents) goes up - so profits go up. When Gas was $1.00 a gallon, they were making 8 to 10 cents per gallon. Now they're making around 40 cents per gallon. They are providing a valuable service and important commodity. I don't begrudge them making a few pennies on the dollar in return. When one considers just how much value we get from a gallon of gasoline - the ability to get places quickly, to transport objects easily, the time saved, in a very real way, the oil companies aren't getting in money nearly what they've given us in time.

Meanwhile, the government's getting over a dollar. And I could (but won't) go on for days about how much value for our dollar we DONT get from them.

Environmental concerns are important, but I personally believe Environmental concerns should be considered from the long range and what's best for mankind, first and foremost. Otherwise we risk becoming culturally suicidal for the sake of the environment.

[leezza]

I lived in Alaska for 30 years and worked on the North Slope in Prudhoe Bay for 9 years in the 1980s so I want to weigh in on this conversation.......

*Prudhoe Bay is the cleanest construction site I have ever worked on, and that is because the Alaska Native Assn. and the EPA kept a good eye on the oil companies and construction companies.....they could do it again.

*When I worked there the animals would come by and visit the locations and see what was going on and then mosey on to the next location. I have pictures of the animals standing around to see what the silly humans were doing.

*This area in Alaska is a 2 hour jet ride from Fairbanks and is not a tourist destination......YEESH!

*And for you tree huggers......there are no trees for a few hundred miles.....this area is swamp land basically.

JMHO,
leezza

[C@rol]

Congress should publicize these facts, prepare an inventory of how many oil-rich areas they have blocked off, and bring in economists to estimate how much all of this raises gas prices.

Americans deserve to know the story--in all its gory detail--of what their government has done and is doing to cause high prices at the pump, and to make gasoline--indeed, all energy--more scarce and more expensive in the future. A congressional investigation of Congress would be a great public service.

Great article.
I saw the governor of Alaska this morning on one of the news shows and she (42 yrs. old w/5 kids) was expressing these same exact views.

[Greebo]

Drilling the ANWR would only supply oil for about 2 weeks alone in the US. No sense. Drilling the coastlines would supply about 2 months.

If the ANWR were used as the sole source, yes. As a supplement, however, basic economics kicks in - more supply causes lower prices.

As for the coastlines: your math intrigues me. If 100B barrels is 13 times the annual consumption rate of the US, how do you shrink that down to 2 months worth?

Regardless of where its fed from, the US dependency upon oil is a reality, and the alternative technologies (which I LOVE, btw. I'm very pro green *if* it can save me money too) are just not ready. (Although I think Solar is on the brink of getting a LOT more efficient and less expensive.) Economically, failure to supply oil while we transition will be devastating, and if the economy goes into a real recession or, heaven help us, a depression, research into new, green technologies will suffer first.

Something is definitely wrong with this picture.

That's why I posted the article. Its wrong all around - it ain't all just big oil.

[PAVallygrl]

My idoit neighbor just bought a HUGE truck that gets 12 mpg just because "He's always wanted one". People with this mind set also contribute to the rising costs known as "Suppy and Demand" At $4 a gallon I still see plenty of Monster Trucks and SUV's on the road. I hope these people are not complaining, since it seems like since they have not traded them in (dumped them) that they can afford the high prices after all.

[cmitch1961]

My family owns some small oil wells and this income has helped me go back to school as a single mom at age 47. Blame many factors on the increase of price but the biggest factor is the world's demand (mostly Asia) is increasing by leaps and bounds and oil is greatly affected by supply and demand. The weak $$ has also had affect, but compared to the rest of the world we are still paying a lower price for gas.

[CanadianTreehugger]

Trucks, SUV's Hummers, caddies etc are all going the way of the dinosaur and can be bought CHEAP! Only the poor will buy them, but then not be able to support their gas guzzling ways. A pity.
I think getting a great bike (motor or bicycle) with saddlebags, or decent horses (and wagon or carriage if like) and/or a small car is the way to go. Walking, biking, sharing rides etc. are all good things and we'll all be healthier and on better terms with our neighbors and ourselves. Really I think this rxpensive gas thing is going to be good for us.

Good things about High Gas Costs

Fewer RV's at the Nat'l parks mean the animals, air quality and land use will be more healthful, peaceful and safe for humans, plants and animals.

Fewer off road vehicles mean less tearing up of the landscape, and less noise pollution for those of us who live close to nature BECAUSE we LIKE nature.

Fewer boats and ships, mean more fish and sea life, less garbage islands and less damage to aquatic habitats and coral reefs.

More gardens mean healthier food (Organic veg gives TWICE the amount of nutirents than commercial grown!) and we get more natural exercise, fresh air and sunshine, healthier minds and bodies.

Slower and less driving to conserve fuel means safer highways and less pollution.

Yep, I'm kinda liking this change for us. Fewer fat Americans, more self sustainability, increased neighborliness means a stonger America overall.

Though I no longer live in the U.S. I find Alberta to be a very "Vehicle heavy" Province of course its an oil producing one too. This makes me sad especially as for example, our city has good enough alternative transportation and a good network for finding someone to carpool with. We could use better bike paths but we do have them.

but anyways I just wanted to say that I 100% agree with the quoted comment above

[Dad_of_4]

For all of you that are hard core tree huggers. Do you also complain about the price of food? Or how costs are going up on everything? What you are prescribing will only send prices higher.

Alternative energies like solar and wind are fine as long as it is sunny and windy, but what about during the short days of winter when energy demand is at it's highest. Also, producing solar panels is a very enviromentally dirty job and the life of even the best panels is a decade.

If we want to become energy independent drilling and nuclear are the only cost effective options. What is also over looked is all the other products we get from oil. Plastic, waxes, tars, asphault. What do you think we are going to use to replace these materials if we do not have oil? There are "eco-friendly" replacements but they would require turning more and more wildlife areas into farmland. So we can eithier silghtl disturb some wildlife in alaska or plow up 20% of the wilderness in the lower 48. Which do you think is better?

[CanadianTreehugger]

For all of you that are hard core tree huggers. Do you also complain about the price of food? Or how costs are going up on everything? What you are prescribing will only send prices higher.

Alternative energies like solar and wind are fine as long as it is sunny and windy, but what about during the short days of winter when energy demand is at it's highest. Also, producing solar panels is a very enviromentally dirty job and the life of even the best panels is a decade.

If we want to become energy independent drilling and nuclear are the only cost effective options. What is also over looked is all the other products we get from oil. Plastic, waxes, tars, asphault. What do you think we are going to use to replace these materials if we do not have oil? There are "eco-friendly" replacements but they would require turning more and more wildlife areas into farmland. So we can eithier silghtl disturb some wildlife in alaska or plow up 20% of the wilderness in the lower 48. Which do you think is better?

But where would it end? Alaska? 20% wilderness in the lower 48, and so on and so on and so on.

And no I personally do not think grain dependant fuels are the way to go either because of vast acres of farmland that would need to replace wildlife area.

I'm not anti-car or anti-oil I'm pro-using your head and pro-fuel effecient and thoughtful comsumption. I'm pro-bike and anti-hummer.

My .02

[Dad_of_4]

But where would it end? Alaska? 20% wilderness in the lower 48, and so on and so on and so on.

And no I personally do not think grain dependant fuels are the way to go either because of vast acres of farmland that would need to replace wildlife area.

I'm not anti-car or anti-oil I'm pro-using your head and pro-fuel effecient and thoughtful comsumption. I'm pro-bike and anti-hummer.

My .02

What about all the other products we get from oil? Solar, wind, and nuclear can not replace plastic, waxes, tars or asphalts. These things are need for everyday life. How do suggest we replace these materials without drilling for more oil?

[CanadianTreehugger]

What about all the other products we get from oil? Solar, wind, and nuclear can not replace plastic, waxes, tars or asphalts. These things are need for everyday life. How do suggest we replace these materials without drilling for more oil?

I'm certainly not going to argue on whether or not we need oil or if it does or doesn't have it's uses but I would still like my question answered...where does it end?

Also its not like oil is a never ending resource either. Its not sustainable and though it may not run out in my lifetime what about future generations? I'm not arrogant enough not to care about my great or great great grandchildren.

I think of it like this...My husbands family is from Newfoundland. For many many many years the cod industry was great. People got negligant, fishing grounds weren't protected and now the Islanders barely scrap by because there isn't enough cod to sustain their livliehood,droves had to relocate to other Provinces with or wihout their families...oh but now...now they have two oil rigs offshore...Once again people get excited but how many generations will that last because it won't last forever. I don't fault the excitement but I for one would like to see some long term planning for when the oil does run out.

Alberta is even starting to slow down from our "Oil Boom" and I hear the next great place is Saskatchewan and so on and so on...

So again I'm not anti-oil I'm Pro-thoughtful use. I'm certainly not going to raise hell to a family that need a vehicle for medical reasons,large family,great distances from neccesseties but I'm sure not going to applaud the bozo driving by me in his hummer either.

[CanadianTreehugger]

Anyways I also want to apologize to anyone I may have offended. I really need to learn to keep my opinions and beliefs to myself.