By Nick Barile
If you’ve glanced at the big numbers on top of the gasoline pump recently, you’ve undoubtedly noticed the slow, dreadful escalation of fuel prices. The majority of Americans are now paying close to $4.00 per gallon of gasoline, which has threatened the economic recovery and pushed many families closer to the brink. Why? Because, like it or not, our world runs on sweet crude oil.
Everything you buy, eat, or interact with is in existence because of oil. Your groceries, your school commute, your laptop- even this article that you’re reading right now- all have a relationship with oil that’s not going to end well. It’s important to understand why fuel prices are so high, and what you- and our country- should do to combat them.
Oil, natural gas, and other commodities’ prices reflect the speculation of investors based on the current environment. Almost all consumables are based on the centuries-old theory of supply and demand. If America is on the road-trip to recovery, then she’s going to have to fill the tank more than sitting idly in the depths of the Recession.
It seems that along with our own economic expansion, we have witnessed a dramatic uptick in the world’s consumption of oil. China and India have been rapidly expanding economically, and population growth has resulted in more vehicles being on the road than ever before.
The instability of the Middle East has also been the culprit for the theft of more American dollars. Revolutions of the Arab Spring have caused fear of a supply disruption, which would bring back the gas shortages of the 1970’s. Even more so, the United States’ increasingly hawkish foreign policy with Iran has led investors to become wary of yet another war fought within sight of oil wells, further causing fear of a drop in supply.
But our government isn’t doing that well in easing tensions. Our continued presence in the Middle East has led to many outbreaks of violence, stressing any political stability to be had. And the Obama Administration’s belligerence towards Iran has caused many near-panics for speculators, as Iran has retaliated with threats to stem the flow of oil out of the Middle East.
Our current policy is the equivalent of throwing water on a grease fire. It may seem the correct thing to do, but in reality, all it does is further spread the flames and result in more problems. If the United States wants to truly prevent political instability, then the government needs to dramatically re-think the interventionist foreign policy it has maintained for the past decade.
Even so, there are countless things to be done at home in order to hopefully quell gas prices’ jumpiness. The first is a relatively obvious answer: more domestic production. Few will deny the risks of oil exploration. There have been catastrophes, no doubt, but we are on the verge of an economic one if Americans see gas prices upwards of $5 a gallon (not a far-fetched thought at all, as gas prices in Europe hover around $9 per gallon).
Although many advocate higher efficiency standards, it’s important to consider the feasibility of such requirements. The Chevrolet Volt, for instance, a poster-boy for President’s push for alternative energy, has been a spectacular marketing failure because of its price and ROI factor.
Consumers will simply not pay ridiculous sums of money for a car just to lower annual gasoline bills- that would take 27 years to recoup the investment. Even though Europe is a horrible example to follow in terms of production, they have been able to raise their efficiency by using two things: diesel fuel and small scooters/”Vespas”.
Diesel provides for much better fuel economy than its counterpart (capable of hitting near 50 MPG on the highway), and most gas-powered mopeds/scooters can achieve near 100 miles to the gallon. If America were to adapt itself to these things, gas consumption would fall dramatically than our current plans of driving 8 cylinder SUVs to work.
While we generally agree with Nick’s pov, we here at DataAnalytics
disagree with a few key points the author made.
Demand for gasoline the U.S. is at a 17 year low, while Europe is at a
decade low. Which more than off-sets the increases in China and India.
Also, the False Inflection points that are utilized by the traders are convenient ‘triggers’ that enable them to raise the prices without any accountability or real proof. The Iranian ‘issues’ were all media and government created, in order to allow the street to drive the prices up during that supposed ‘tense’ period.
Middle-East tensions with regard to oil supply has been something the
market has had to deal with for about 40 years, this is not something new.
But because the media and the government made so much noise about it,
it in turn gave the green-light to speculators, to panic investors and drive
up the Nymex/Cushing contract prices under false pretenses.
DataAnalytics findings reveal that Speculation accounts for approximately (+/-)28% of the price of a barrel of Brent Crude. NOT the 15% the St. Louis Fed came up with. Kevin G. Hall, of McClatchy states, “Oil and gas prices were soaring thanks again in no small part to rampant financial speculation on top of (exaggerated) fears of supply disruptions.”
Hall’s March report highlights the fact that despite rising prices at U.S. gas pumps, demand in the U.S. was so low it has “become a net exporter of gasoline, unable to consume all that it generates.”
We also believe that Europe is not a ‘horrible’ example of production, as
Europe’s GDP is not much different than the U.S.’s over the past4 years.
We also would really like to see the U.S. government and State governments seriously adapt alternative transportation methods, such as bicycles and scooters much more widely than it is. Our roads and highways are in general, not bicycle/scooter friendly at all. Especially on the east and west metro coast areas.