Here are a few interesting pieces on the oil price issue.
First is this report that hedge funds and their ilk will have their oil positions publicly disclosed. That can’t be comfortable for the companies who gleefully forecast $300 a barrel oil a year ago.
A more recent story by Bloomberg ratchets up the government’s interest in intervention. Somewhere today, I suspect Dick Cheney’s head has exploded.
Next comes the revelation that supply is up and demand is down for gasoline, ironically just a couple of weeks after speculators pushed the price above $70, claiming just the opposite. Go figure.
Wednesday’s looking like a bad day for the supply and demand canard, eh? You’re going to have to excuse me, but when people opine that high oil prices are the direct result of plummeting supply and skyrocketing demand, my first move is to protect my wallet.
18 Comments
So, Bill, what is driving the price of gasoline?
Colluders?
This would be a particularly good time to increase efficienies and develop alternatives so we could break the abck of the cartels.
It would, Ben. I find it more than a little bit amusing that some contend gasoline has to be $4 a gallon to motivate the development of alternative fuels.
Those are the people I’m most suspicious of, given the profit-motivated maneuvering that’s been documented behind this issue for years. People need to understand that there are segments – and states – in America which stand to benefit financially when oil and gasoline are unaffordable, and they’ll do and say most anything to keep it there.
There were few heartier laughs to be found back in the days of $4 gas then to turn on the national news and see a CBS reporter sitting at the desk of a Goldman Sachs analyst asking them what the future of oil prices would be. There’s some lazy television journalism.
Remember those $300 a barrel predictions? Tell me that wasn’t entirely self-serving.
As for the current price of gasoline, I think you need look no further than the federal government’s renewed interest in regulating speculation for your answer.
Frankly, if we’re so greed-motivated as a country that we cannot see the wisdom in alternative fuels – or if our politicians are so focused on protecting the oil industry, at whatever cost – then alternative fuels aren’t going to happen, whether the price of a gallon of gas is $2 or $10.
One problem Bill is that oil gets a depletion allowance on their taxes. In effect we subsidize it. We further subsidize foreign oil by militarily propping up “friendly” regimes.
I think we HAVE seen that it takes about $3 gas to get many people to look at switching from a gas hog to a ,ore efficient vehicle. And it will take many years to transition our fleet to better mileage – assuming we ever start.
I recall from a nuclear energy conference I attended that there is a ‘break point’ that fossil fuel has to cost for nuclear (higher capital cost) to be competitive. The same is true with other alternatives. Oil is easy as long as we can get it. Alternatives need development and lead time.
So, as I see it, we subsidize oil, wind, nuclear, and ethanol. Is that what’s called a level playing field?
I don’t see how Dick Cheney has anything to do with this. Also, you can scream at oil barrel prices all you want, but what makes you the arbitrator of what a “fair” price of oil should be?
You can complain all you want, or blame it on the ilk of hedge funds and speculators. If the government feels that it needs more regulation, then so be it. I’m sure the Interest Groups are battle mode now.
Bill, your political ideological stance is really showing through. That’s fine, it’s a blog posting and your entitled to your opinion. The only thing that it tells me, and tell me if I’m wrong, but some people who take a hard line political and ideological stance on any subject tend to have that political ideological stance trump over any other issue, therefore jeopardizing the objective professionalism that reporters tend to portray themselves to possess.
In other words, every time I will read an article that you have wrote for the Wichita Eagle, it will always be in my head that this is a reporter who is looking at this business or Business issues through a political lens. And it doesn’t matter if you were left or right wing in your political views, I’m just never going to see it as objective or unbiased reporting.
Maybe you can separate your political views professionally, I don’t know. Maybe this blog is a way for you to express how you really feel so it doesn’t translate it to the actual “printed” articles. We will see. Reporters having their own blogs to express their opinions might actually be a good thing.
Agree, ictBest –
Bill you haven’t answered the question.
Bill, do you want government setting the price? Some “enlightened” bureaucrats ?
Are they better than the marketplace?
Do you have any proof, any, that the $4 figure isn’t correct? Ethanol makes no sense.
Why is it so tough for some to accept the fact that oil and gasoline are very cost-effective energy sources?
frankie – as a veteran of the oil industry I question your view that oil is cost-effective in the long run. When you consider the cost of militarily propping up regimes in places like Saudi Arabia, Iraq, Nigeria etc the costs become much higher. My experience working for one of the old “Seven Sisters” taught be that they held oligopoly power over prices and availability. Things are worse today as unfriendly foreign countries hold that power.
Chuckle.
Ict, you’re not one to jump to many conclusions, are you? You’re free to think whatever you want. You would be wrong in this instance, but this is still America and we’re all entitled to our opinions.
Here’s mine: Some of the above posts make it pretty clear that it’s fine for government to artificially inflate oil prices with policy and the lack thereof – as it did in the Bush administration and to some degree at the end of the Clinton administration – but it’s not OK for government to step in with regulation to keep the price from being artificially inflated during an economic crisis. I could not disagree with that more strongly.
Which makes my point in the third response in this thread: Those who benefit from high oil prices will say and do whatever necessary to justify those prices.
It boils down to this: Now is not the time, in this current economic environment, for oil commodities speculators to attempt to get rich in a free-for-all market by manipulating prices. Again. I applaud the government’s intervention on this issue, and its recognition that oil commodities trading is anything but a truly free market. That’s the inherent difference in the definition of free market, I believe: When the market supply and demand actually is driving price, that’s a lofty goal.
Unfortunately, though, free market in the last couple of decades means “a market free enough of regulation and consumer protection for me to take your money.”
It’s really an issue of statesmanship, as is the alternative fuels debate: Are we going to man up and do what’s best for America?
Or are we going to do what’s best for ourselves? I think we’ve seen the impact of the latter quite vividly.
Bill, so you are arguing for a nanny-state of sorts for energy.
Who exactly will be deciding “what is best”? Who are you to determine this? What do you mean, “man up”? Have government bureaucrats deterimine what the price of oil is and what energy we have available is better than the market making these determinations?
At least you are honest that you don’t like the free market. Why is it that you are on the business desk? Oh, that’s right, you work for the Eagle.
What about all of the wasted subsidies and increases in food prices b/c of ethanol?
BTH, please enlighten us on a more cost-effective enenergy source, even if you add the cost of part of our military budget. Do you really think our military budget goes down if our electricity all comes from wind or bunnies on treadmills? What alternatives do you suggest for vehicle fuel?
How much oil are we protecting in Afghanistan?
Vehicle fuel can come from a number of sources. Pickens’ idea os methan has some merit. H2 derived from nuclear or wind might be interesting. Even gasoline/diesel can be part of the mix – not burning liquid hydrocarbons for ‘fixed-site’ power will free up oil for transportation. For many uses electricity can power vehicles (comuter cars). Technology can squeeze more miles from our fuels.
As you should already know I am NOT a fan of corn/ethanol. I have written against it in the past.
re: the free market. We have NEVER had a free market in oil – at least for the past century. As I noted, when I was with one of the Seven Sisters that oligopoly controled it. Now foreign cartels control it in cooperation with the surviving members of the Seven.
I appreciate Bill recognizing that the free market often means free to get all you can regardless of who gets harmed. This is not competition where the consumer votes with their purse. This is monopolistic practices to artificially inflate the cost to consumers. These are not political views but clear perspectives on what is happening.
Well, Bill. You obviously do not understand what “free markets” are. Free markets are fair markets where the rules and regulations apply to everybody equally in order to have a fair playing field. Regulations and rules are often times changed, in reactionary mode, to help keep the rules and regulations fair for all.
Socialism does not do that. They use rules, regulations and laws to choose winners and losers that benefit their constituencies and develop a market place where there are different rules and regulations for different players. They use government intervention in the market to force agendas that otherwise wouldn’t be done in a market place. This reduces choice, competition and a fair playing field and the advantage is usually geared towards politically connected companies.
The Community Reinvestment Act is an example. Using quasi-government organizations as Fannie Mae and Freddie Mac to force a political social agenda. They forced banks to dish out mortgages to people who otherwise wouldn’t qualify. Fannie Mae created the sub-prime market. Banks, in order to hedge their losses from defaults and government law suits, bundled the mortgages into securities and the rest we know is the mortgage bubble that popped and slide our economy downwards. This was government intervention. In a “free market” this wouldn’t have happened.
There are regulations on the books to prevent price gouging and to prosecute for fraud. So any run up in commodity prices are usually warranted in a fair way. You think the speculators are evil and causing problems?
Read this entry: 6 myths about Oil Speculators from US News and World Report.
http://www.usnews.com/blogs/flowchart/2008/06/27/6-myths-about-oil-speculators.html
First, I have no idea why your comment was held as pending, ict. However, I have approved it in order to respond to it.
Your concept of free market, while textbook-like, omits one very indisputable fact: People will, by nature, work within the rules to circumvent them for a result counter to the original purpose. Thus, I fear, comes the popularity of the free market. Doesn’t change the real definition over the past decade: “Your money comes freely to me.”
Such is the case with oil speculation, and I frankly am mystified by anyone who tries to defend oil as an unregulated commodity. In fact, the system’s being abused again – by investment houses (oops, they’re banks now) using TARP money to play the Contango game. Just another piece of proof what the “free market” means to some of its more well-heeled proponents.
I understand that investors and speculators don’t like to see their golden goose killed, not that I particularly care because those same investors and speculators are never going to be accused of being particularly statesman-like in their behavior over the past year.
Sad, really, that the government has to step into this situation to protect the nation’s best interests. But that’s where uncontrolled, selfish greed lands us.
The concept of a free market pre-supposes the exietense of numerour competing players acting independantly of one another. This is NOT what we see in the oil industry nor has it been for many decades. Early on the industry was dominated by the old Standard Oil. After this monopoly was ‘busted up’ there was a semblance of competition for a time; however consolidation reduced the number of players to the point of oligopoly. This was the situation when I worked in the oil industry – the Seven Sisters dominated.
In recent years consolidation of the companies has continued; in addition there is now another factor – the foreign-based cartel OPEC. The existence of this cartel; coupled with the small number of dominant corporate players; clearly leads to another situation where classic ‘free market’ conditions do not exist.
That’s quite true, Ben.
The idea that a classic “free market” ever existed with oil is at best supported only briefly through history.
But it’s also proven to be a lovely guise for extreme profit-taking over the years, most recently in 2008. It would appear that those days are coming to a close – for now.
Bill – changing the subject a bit but still on monopoly. Is there any sort of free market in large aircraft? Only two players – Boeing and Airbus. And, with the tanker project there are many who want to ‘protect’ Boeing with ‘buy American’.
There used to be at least some competition – Lockheed comes to mind because I am from CA and GA where they were located. Boeing pretty much ran them out of business; much of the ‘questionable’ procurement history of Boeing involved that. The justification given at the time was that Boeing would compete on the world stage. Well, now that has come to fruition – and Airbus seems to have won that competition. Now Boeing wants protection …
Ask people who used to work for Lockheed if Boeing should be given that shield.
Not my area of expertise, Ben, but I’d agree with your observation. There really isn’t a free market in that realm.