Monday, May 14, 2007

Re: Getting Hosed

Bill O'Reilly recently opinioned this column about the price of gasoline.

Every time you gas up your vehicle and that hose locks into the tank, you, American person, are getting hosed. The energy scam we are presently experiencing is one smooth operation. This time the Arabs aren't raising prices on barrels of oil. This time it's not saber-rattling from Iran that is driving up the price of gas. No, this time the problems are in Whiting, Indiana and Norco, Louisiana.

There are oil refineries in both those towns, and they've had a few annoying problems. A little power outage here, a small fire there. And whenever the speculators hear of any problem in an American refinery, they bid the price of oil up. The oil companies see that and immediately tell your gas station guy to charge more.

There has not been a new oil refinery built in the United States since 1976. Conservatives say the environmental people are blocking construction. There is some truth to that, but the biggest problem in building more refineries is money. Big oil doesn't want to spend billions on a new facility because they are making record profits now, and alternative energies may be coming. The oil barons love the slow-downs in Whiting and Norco, especially when they occur at the start of the summer driving season. Let the profit party begin.

The free marketers hate me for telling you all this. They say it's a "supply and demand" issue. Sure. If you stifle the amount of gasoline refined when everybody wants to drive, yeah, that price is gonna go up. But is that a "free market?"

You, yourself, cannot get into the oil "bidness." It takes all kinds of government approvals every step of the way to market gas and oil. Believe me, "Lenny's One Stop Energy Emporium" is not going to happen. Subway is not going to be ranchising oil refineries anytime soon.

It is beyond frightening that both Democratic and Republican administrations have not insisted more oil refineries be built. We, as a country, are totally dependent on gas and oil, and the economy will collapse if America doesn't have enough of these commodities. But the government has good reason not to impede oil prices: Taxes. The more you pay at the pump, the more money rolls into DC.

But, again, no refineries have been built in 31 years, while demand has increased about 31%, one percent a year.

Appeals for Americans to conserve energy are swell, but they won't work. We are an immediate gratification society. We want what we want, and if it's a Hummer, blank you if you don't like it.

The only way a catastrophe can be headed off is for Congress to get serious with the oil companies and demand they upgrade and expand refining capacity, and play fair on prices. If Congress does not do that, major pain is coming for America.

Besides terrorism, the energy squeeze is the story of our times. Remember, you read it here.

Bill hits this issue right on the head. It's been nearly 6 years since 9/11 and we have been in Iraq for over 4. We've had ample time to measure statistics on the price of a barrel of oil versus the cost of a gallon of gasoline. What we found is that there is little to no correlation between the two.

This report from the Foundation for Taxpayer and Consumer Rights shows the cost of a barrel of oil on April 21, 2006 was $71.87. At the same time the average cost of a gallon of gasoline in the U.S. was $2.96. Nearly one year later, the cost of a barrel of oil on April 13, 2007 was $62.58, and the average price for a gallon of gasoline was $2.92. In case you missed it, that is a reduction in price of over 13% in the cost of a barrel of oil and only a 1.4% percent reduction in the average cost of a gallon of gasoline.

Bill blames this price differentiation not on speculators and the old supply and demand mantra, but on the fact that oil companies have not built a single new refinery since 1976. This is only half the story, however.

Oil companies sight environmental laws and activism as reasons why they aren't opening new refineries. What they don't want you to know is that not only have they not opened any new refineries in more than 3 decades, but they have closed 18 refineries since 1990. Yes, 18, and according to the EIA, there are only 149 refineries currently operating in the U.S. That's a decline of more than 12% in production capacity for gasoline.

So the next time you go to fill up at the pump, realize this. The price you pay for gasoline is not being driven by world wide demand for oil. It is not being driven by restricted production from OPEC. It is not being driven by speculators on the price of oil. It is not even being driven by an increased demand for gasoline in the U.S. It is, however, being driven by an artifially created supply restriction created by big oil companies.