Judging from the manner in which the Administration is reacting to the high price of oil, I can only scratch my head. Should I really believe they are surprised by this? Didn’t we all see this coming?
U.S. Energy Secretary Sam Bodman said the high prices define a crisis, and could last 2-3 years (cnn.com).
I lack the knowledge to speculate on the cause of high prices. I’m pretty sure that oil company record profits are due to the huge markup they can now command on domestic oil, which they get for free, and whose value has climbed drastically. As far as I know, oil companies have free mineral rights, or pay no extraction tax. This explains their record profits. The price of oil is probably set by OPEC and futures traders, who bid up the futures price of oil based on war and disruption fears, and the price at the pump is changed daily to mirror the futures (not today’s spot) price. Am I right so far? They claim gas prices are high because no refinery has been built in 20 years. If the oil companies wanted to build a refinery, they could do it in Tijuana. They don’t want to. There is no incentive for the oil companies to eliminate the refining bottleneck.
The supply/demand imbalance and OPEC’s production capacity have been written about for years. Books like Peak Oil have written about this topic. We all knew this was coming, that we’re running out of cheap oil, the incremental cost of extracting the hard-to-get stuff is prohibitive right now, and eventually we’ll have used up all the oil that exists.
So, where was our proactive Administration? Why weren’t they giving tax subsidies for solar/wind/geothermal power production, increasing fuel efficiency mandates? They are reactive with oil as they were with hurricane Katrina, and they will be reactive to the housing bubble and devaluation of the dollar.
So don’t count on our government to save us from a turning economy. They haven’t shown leadership on economic difficulties so far (unless it’s war…). And count on the consumer being more and more squeezed by the high price of gas.
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