The price of oil is what it should be

It never ceases to amaze me the level of ignorance displayed by people who believe that big oil companies are profiting at the expense of society. I was listening to a talk radio program last week that discussed the current exorbitant gasoline prices and sought opinions from listeners about how to deal with that problem.

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Most people didn’t seem to understand that the availability of crude and the capacity to refine it is what essentially drives the price of gasoline. Most people didn’t seem to understand that oil companies had shareholders, people just like them (and maybe a tad smarter because they bought the stock) who benefited from oil companies’ good fortunes. Many callers saw the oil companies as consisting of evil, secretive individuals who stayed up nights attempting to figure out new ways of screwing their customers. One woman actually wondered why oil wasn’t “free” because it came out of the ground and belonged to all of us. Apparently she had little or no clue about what was involved in the recovery of crude oil and how it was converted into gasoline. Given that there is so much misinformation about the price of gas, it would be a good idea for individuals to either educate themselves on the issues surrounding oil exploration, or failing that, to keep their opinions private. Part of our current problems are actually self-inflicted. Environmental hysterics have caused the so-called oil shortage and subsequent higher prices because they have kept oil companies from recovering oil that isn’t controlled by our enemies. The Arctic National Wildlife Reserve (ANWR) has copious quantities of oil in the ground, but the US Congress has absolutely forbidden drilling in that area because of the environmental lobby. Additionally there are vast reserves of oil in the Dakotas and in the Gulf of Mexico, for which drilling is also proscribed due to environmental concerns. Then there is the issue of refining the crude oil into gasoline. Currently all refineries are working at peak capacity and are incapable of producing more gasoline, even if more cheap crude were readily available. That’s because the last time a new refinery was built, Jimmy Carter was President of the United States. Why no new refineries? You guessed right! It’s because environmentalists have staunchly opposed the development and construction of new refineries and will continue to do so in perpetuity, which means you will continue to pay ever more for gasoline. A lot of people complain that the oil companies are making profits that are “too high”. Well, let’s rationally and honestly look at oil company profits and let’s see whose profits are “too high”. Last year Exxon Mobil posted profits of some $40 billion. Admittedly, that’s a big profit, but most people don’t realize that Exxon Mobil also paid in excess of $105 billion in Taxes to the US government. So, who’s gouging? There are other factors that undoubtedly are driving up the price of crude oil and gasoline. One of these is the activity of speculators who are trading in commodities futures, betting that the price of oil will increase due to regional instability in the Middle East, on whom we depend for large quantities of our oil. Instability causes uncertainty and uncertainty causes increases in commodities futures like oil. Let’s not forget the demand for oil and its by products in the developing world. Both China and India, who together account for over 30% of the world’s population, have increased their demand for oil by exponential proportions. With many individuals in both countries now economically able to purchase automobiles and with industrial production in both countries sharply increased, these countries are now competing with the West for whatever oil is available. As a result OPEC is recording record prices due to the stiff competition for its oil. Relief from high oil prices is possible. But it means that we will have to do a lot of things differently. In the short term we will need to acquire new sources of oil that are more stabile than our current sources. Who can guarantee what will happen to Iranian, Saudi or Venezuelan supplies should world dynamics change? We will need to recover oil from our domestic sources, such as ANWR and our off shore sources and be extra careful to do so without damaging the environment. We will also have to build more refineries in order to meet the increased demand for refined oil products such as gasoline, diesel and jet fuels. Most importantly, we need to discover new technologies that will decrease our dependence on oil, particularly on the volatile and unstable foreign oil. That’s a long-term project, which won’t yield results in the near term. But for the long term it’s a necessity that even those who think the current high prices are the result of greedy oil giants will agree on.