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March 5th, 2012
Freethought San Marcos: Gasoline prices, political nonsense and oil speculators

Freethought San Marcos: A column

None of us like paying higher prices for gasoline. Some of us can’t afford the price increases we have seen the last few weeks and months to get to work and wherever else we need (or want) to go, leaving us less to spend on other products. But what most politicians have to say on the subject is nonsense. They want to score political points, rather than find a way out of this mess, or at least a way to improve it.

The giddy, knee-jerk response to higher gasoline prices is the thoughtless mantra “drill, baby, drill.”  But our problem is not a lack of domestic oil production. We are producing about all we can, with thousands of leases still not developed. And domestic demand is lower than it was 14 years ago. According to a report in Bloomberg Businessweek Magazine, the US demand for crude oil in 2011 was less than it was in April 1997. In spite of our gargantuan appetite for oil, as a share of our total use, domestic oil consumption was 15 points lower in 2005 than it was in 1995. Today’s figures are about the same, according to a petroleum report in the Financial Times of London.

The largest single source of oil for the US is Canada, at 25%. The OPEC countries together account for 47% of US imports.   Demand for oil in the US dropped 2% in 2011, while US oil production has increased. The rise in gasoline prices is not because we don’t have enough oil. Two reasons for the higher prices are the rising cost of oil on the world market because of higher demand in China and India, and the actions of crude oil commodity speculators.

US oil companies export more oil products, such as gasoline and diesel, than they import. The top ten countries we export to are Mexico, Netherlands, Chile, Canada, Spain, Brazil, Guatemala, Turkey, Argentina, and France. In fact, most of the XL Pipeline tar sands oil that could come from Canada is slated to be turned into diesel and exported, according to the refineries that will process that oil if it ever comes into the US. The main reason for the increased US exports of petroleum products is that the refineries make more money exporting it than selling it domestically. Further, the refineries in the Port Arthur area are in a Foreign Trade Zone that rewards them with tax breaks for exporting oil products.

The thousands of new jobs that some politicians and business interests claim will be created by the XL Pipeline are nothing but Chamber of Commerce-type hype. The pipeline construction may result in 2500 temporary jobs, not tens of thousands of permanent jobs.

A leading expert on gas prices, James Hamilton of The University of California-San Diego, says that generally a $1 increase in the price of crude oil produces a 2.5-cent increase in the price of gasoline, which is exactly what has been happening in recent weeks.

While the gasoline price increases are not yet higher than they were in 2008, we did not hear President Bush being blamed for those increases then. But those opposed to President Obama have been yelling to anyone within earshot that the current responsibility for gasoline price increases are his. This is partisan and political nonsense, unsupported by the economic reality that about 97% of the price of gasoline is determined by the price of crude oil, according to Stuart Staniford, a scientist in the technology industry who studies oil-related data.

Around 2004, oil production stopped increasing world-wide. The producing countries have only so many pumps, oil pipelines, tankers, and other methods of getting the crude oil to refineries. As a result, the increasing demand from Asia and the rest of the rapidly-developing countries has created new competition for the oil production that is available, driving prices up. Decreasing demand for oil products caused by more energy-efficient vehicles makes a small difference in the price of gasoline, as do marginal increases or decreases in the price charged by retailers.

Oil commodity speculators also drive up the price of crude oil. According to some estimates, such speculators control 80% of the commodity futures market in crude oil. Such speculators don’t produce oil, refine it, or use it, except as a way to make money by arranging to buy it at one price and sell it at a higher price. Sen. Bernie Sanders (I-Vermont) wrote recently for CNN Opinion:

“I’ve seen the raw documents that prove the role of speculators. Commodity Futures Trading Commission records showed that in the summer of 2008, when gas prices spiked to more than $4 a gallon, speculators overwhelmingly controlled the crude oil futures market. The commission, which supposedly represents the interests of the American people, had kept the information hidden from the public for nearly three years. That alone is an outrage. The American people had a right to know exactly who caused gas prices to skyrocket in 2008 and who is causing them to spike today.

“Even those inside the oil industry have admitted that speculation is driving up the price of gasoline. The CEO of Exxon-Mobil, Rex Tillerson, told a Senate hearing last year that speculation was driving up the price of a barrel of oil by as much as 40%. The general counsel of Delta Airlines, Ben Hirst, and the experts at Goldman Sachs also said excessive speculation is causing oil prices to spike by up to 40%. Even Saudi Arabia, the largest exporter of oil in the world, told the Bush administration back in 2008, during the last major spike in oil prices, that speculation was responsible for about $40 of a barrel of oil.”

Confirming Sen. Sanders’s statements are comments from Bart Chilton, a commissioner on the five-member Commodity Futures Trading Commission, which regulates the trading of contracts for future deliveries of oil, as well as other commodities:  “There is currently ample supply and limited demand, which should not push prices to the places they are today. Financial regulators are not price setters, but we are supposed to ensure prices are fair, and I am concerned that today they are not. There is a speculative premium being paid by consumers and businesses alike.”

New shale oil production in North Dakota and West Texas, new off-shore production, and recovering oil from the Arctic might increase global supplies a bit if the oil can be shipped to refineries, and if the refineries can increase their capacity to produce more oil products. But given the increasing demand for oil in China and other countries with newly-growing economies, it is unlikely that the price of crude oil will be permanently reduced by those small increases in production. With speculators influencing the price of crude oil for their economic benefit, the price will continue to be significantly higher than it would be in a non-speculative market. Such speculators are rightly seen as social and economic parasites who would rather manipulate oil prices than do any productive work.

But the bottom line is that everyone in the world will pay whatever they must to get the oil they need no matter what causes price increases. And the US will not be exempt from these forces. The chances that this Congress will do something about the crude oil speculation seems not very good to me, so we will continue to pay higher prices than we need to pay at the pump.

Realistically (meaning we will get no help from Congress), the best we can hope to do to lessen the impact of high oil prices is to drive more economical vehicles, switch to electric and hydrogen-powered vehicles (when they become available), or find other technologies to meet our transportation needs that don’t rely so directly on oil products.

© Lamar W. Hankins, Freethought San Marcos

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11 thoughts on “Freethought San Marcos: Gasoline prices, political nonsense and oil speculators

  1. Hankins: “While the gasoline price increases are not yet higher than they were in 2008, WE DID NOT HEAR PRESIDENT BUSH BEING BLAMED FOR THOSE INCREASES THEN.” (emphasis added)

    You might want to do a little research on that statement.

    How about this from CNN Politics (July 17, 2008, speaking about $4 gas prices) “Pelosi, a California Democrat, said multiple initiatives intended to lower high energy costs have passed the Democratically controlled House only to “run into a brick wall” in the Senate because they did not receive the 60 votes needed to overcome Republican filibusters.
    “The price of oil is attributed to two oil men in the White House and their protectors in the United States Senate,” Pelosi said in an interview with CNN’n Wolf Blitzer.”

    How about then candidate Obama on the campaign trail in April of 2008 (in Indiana) “When George Bush asked Dick Cheney to come up with our energy policy a few years ago… he met with the renewable energy groups once. He met with the oil and gas companies 40 times, and so it’s not surprising then that the laws that have come out of Washington have been good for the oil companies — not so good for consumers.”

    Jim Hightower on his Hightower Lowdown blog from April 2008 listed “What 8 years of Bush and Cheney have done to our economy — Average price of a gallon of gas $1.47 in 2001, $3.14 in 2008”

    In August of 2008, a Democratic blogger praised an Obama campaign ad that linked John McCain to Big Oil. “After one president in the pocket of Big Oil, we can’t afford another,” the ad jabs. The blogger (Blue Texan) gurgles about how the ad brilliantly “holds Bush’s energy policies directly responsible for record gas prices”. With Bush and Cheney letting Big Oil “write our energy policies,” the blog continues, “No one should be surprised about the fix we’re in.”

    These are just a few examples easily found. Bush WAS being blamed by Democrats for the high gas prices. Maybe Lamar meant to say Bush wasn’t being blamed by THE REPUBLICANS.

  2. The tone of the article seems to say that investment in drilling and infrastructure is a waste. Although we may be exporting today, I think there’s tremendous value in knowing we could supply all our energy needs if we had to. If (when?) conditions aroung the world become such that importing oil is not feasible, we need to be in a position to meet our own needs domestically.

    Near the end of the article it talks about domestic sources without mentioning the Eagle Ford Shale which is predicted to surpass the Permian Basin in crude production in the very near future. Pipeline investment in the Eagle Ford has been in the billions of dollars indicating the industry’s confidence in the viability of this field.

    I don’t have much wisdom when it comes to commodities speculators but is it possible they’re providing the cash to fund our domestic production? When supply becomes high enough might the speculators back off and prices become more reflective of the market?

  3. To Retrocon:

    Gas prices peaked at $4.12 a gallon in 2008. They spiked that year and then went down. Now they are going back up. Bush wasn’t blamed then by FOX News analysts who said over and over that the President has no influence over gas prices. Now, they have changed their tune and blame Obama. I guess we can agree that both parties will use any argument to score political points. That’s why I’m not a member of either party.

  4. Oligopolies always suck no matter what they are producing. This is especially so when their product has highly inelastic demand. And this is even doubly so when said oligopoly is firmly in bed with our politicians (of both parties) and the people who vote them into office are happy to chase after the snipes their particular party of choice lobs their way…no need to bother with time consuming efforts like chasing down facts or looking at the issue from different angles for far too many of US. God bless those soundbites, eh? Quite a vibrant democracy and free market system we’ve created here in the land of the Free Time…

  5. So first it’s “no one was blaming Bush for high gas prices” and now that someone has exposed that little charade, now it’s “Fox News wasn’t blaming Bush for high gas prices.”

    Way to keep the target moving there, Lamar…..classic.

  6. To Dano:

    I’m not moving the target. I misstated my point in my column and after that was pointed out to me, I explained what I had intended to say. I made a mistake. If that offends you, I will strive harder to live up to your level of perfection, which I am sure is much higher than any of the rest of us mere mortals..

  7. Right after Obama was elected, I was filling up at Sam’s here in San Marcos and the woman working the pumps came up to me and said, a little crazy-eyed, “Better fill up now because the price of gas is going to skyrocket.”

    Really? How come?

    She moved in closer and half-whispered, “Obama made a deal with all them ay-rabs that they could hike up the price of gas on us as soon as he takes office.”

    Well ma’am, he isn’t even President yet, so I doubt he’s in any position…

    “It’s all there on the Internet.”

    I spent the next few minutes trying to figure out what she possibly could have seen in me that suggested she should sidle up and spew conspiracy theories. Then I wondered how long she’d be able to hang onto her job if she spent her days walking up to customers and sharing her suspicions about Obama.

    Anyway, I’ve never thought the President controls the price of oil. It’s a globally traded commodity. Things like war in the Middle East — now that will drive up oil prices, and certainly we can attribute those developments to the actions of one President or another.

    I think Big Oil and Big Auto and Big Finance all love Obama just fine. Just like they’ll love Mitt if he makes it to the White House later this year. It’s a big love fest…politicians and money folks are always making out.

    But somewhere, I just know that poor lady from Sam’s is wringing her hands over Obama’s plan to push up gas prices so we’ll all have to drive electric cars. There’s probably a Glenn Beck diagram that explains it. And it probably has the word “caliphate” appearing four or five times.

    I’m just happy to have been able to use the world “caliphate” today.

  8. Lamar, I knew when I read your last paragraph that you were all for giving those wonderful solar panel companies all those millions of dollars to waste on their folly, that you were in the bag for Obama. You can say all you want your not a member of either party, however, you’ll have a hard time convincing me your not an Obamanite.

  9. To Paula B:

    Anyone who has read my criticisms, some very harsh, of Obama over the last three years and believes I an Obama true believer must be suffering from confirmation bias. I have lambasted him for the healthcare bill, the continued erosion of civil liberties, for the extra-judicial killing of American citizens, for continuing the practice of extraordinary rendition, for keeping Guantanamo open, for invoking the state secrets doctrine to keep the courts from adjudicating issues, for escalating the War in Afghanistan, and much more. But I would agree that he is better than his predecessor.

  10. Paula, the government loan to Solyndra was a botch, but solar is hardly a “folly.”

    I’m a happy consumer of carbon-based energy, and I own stock in both oil companies and in natural gas trusts. But I also recognize that all of us one day will rely at least in some part on renewable energy sources like solar and wind. It’s gonna happen, and if it’s done correctly, we’ll dramatically reduce our dependence on foreign oil. (I know several people with solar panels and they love seeing their electric meters spinning backwards on sunny days.)

    I don’t disparage the Obama administration for trying to get that renewable energy future rolling ASAP. In fact, I credit them for it. But like any venture capital firm, they placed a bet (in this case on Solyndra) and they lost.

    Ideally, the market would drive innovation and adoption of solar. But the market is largely controlled by global energy entities with a vested interest in keeping us consuming as much oil, gas and coal as possible. So it won’t happen without some kind of incubation effort.

    Too bad. If Exxon/Mobile and BP and the rest would put substantial R&D toward solar and wind power, they might be less concerned about how those emerging (and inevitable) energy sources will cannibalize their revenues. They would be planning and preparing for what their business will look like decades from now.

    Even big corporations adapt, sometimes sooner than we think. Hybrids — not long ago considered to be a crazy “out there” concept from granola-munching Californians — are now available as SUVs. Imagine that.

    Solar and wind will happen too, sooner or later. We’ll all be better off if they happen sooner.

  11. I am a new transplant from California and have not had the benefit of all the articles written by Lamar over the last several years. If I have misinterpreted his leanings from prior articles, I stand corrected. It seems that what he has written the last 4 or 5 months has been so far to the left, that he fails to recognize some of the obvious remedies to the problems facing our wonderful country since our current administration took office. I too am an “all of the above” believer. There is much to be said from some of the alternative energy sources available to us. I just believe that the free market should drive the source, not tax payers. That is where I and Lamar part ways.

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