Nationally, gasoline prices at the pump have gone up 44 cents in the past month, to an average $3.74. Over the same period they've risen 50 cents in Fresno to $4.06 and 48 cents in Visalia, to $4.04. We have boosted domestic production immensely, which the "drill baby drill" chanters promised would reduce prices. So what's going on? As an analysis in today's Fresno Bee by Kevin G. Hall points out, it's the usual suspects: the OPEC cartel and financial industry speculators. It continues to pound home a lesson we should have learned long ago: so long as we continue to rely on a commodity like a fossil fuel for our main energy needs we will never be able to get ahead of this vulnerability. We will only enjoy true independence and predictability once we have made the switch to renewables like solar and wind.
Higher gas prices suck the steam out of the economic recovery. They reduce the purchasing power American consumers have to spend on other items. Hall writes, "Gasoline expenditures as a percentage of U.S. household income hit three-decade highs in 2012."
This hasn't been abated by our own ramping up of drilling and production. From 2011 to 2012 the U.S. domestic oil industry, largely unleashed by the Obama Administration, expanded its drilling by 800,000 barrels a day. American production is on track to "rise from 6.89 million barrels a day in November 2012 to 8.15 million by December 2014." We now produce more than half the oil we consume, up from less than a third at our lowest. Thanks to increasing vehicle fuel economy, we are also using less. As a result of these factors, as you can see by the chart in this link, we have cut imports by about 20% since President Obama took office. That is all good, but it still hasn't resulted in a big price break for U.S. consumers. That's because we don't really have a free market for oil, and also because we do. Let me explain.
On one level, there isn't enough free enterprise in the market. The OPEC oil cartel can, and does, intervene to keep the price of oil at a level they want. They do this by cutting production when price drops too far or increasing production if they want the price to go down. The OPEC countries with large reserves but small populations to support, like Saudi Arabia, simply drill less oil, and by the laws of supply and demand, the price goes up. That is even though world demand has recently gone down. The International Energy Agency reports that, "Lacking demand, OPEC, the oil-exporters cartel, has reduced production."
But that's only half the story. The other half is where we have too much free enterprise, and that refers to energy speculators. Rather than trucking companies and airlines, who are consumers themselves and used to buy most of the oil futures at prices designed to keep costs in check, these days, as Hall reports, "Non-commercial financial speculators now dominate 70% of the market. The trading is dominated by Wall Street banks, hedge funds and other financial institutions that have no intention to take delivery of the oil needed to make gasoline."
They buy all the uncontracted oil they can and hang onto it, starving the world's economies of oil until desperate consumers begin bidding up the price. Then they sell at a hefty profit. According to Bart Chilton of the Commodity Futures Trading Commission, "It's speculators who are moving markets. They are almost the entire market at certain periods of time." So manufacturers, transportation companies and everyday drivers are stuck with crippling and escalating costs so that the already engorged oil cartel and Wall Street operators can continue adding to their untold billions.
Whether we drill more or not, those who have the system rigged in their favor are certain to get their pound of flesh. Only when we get the lion's share of our energy directly from sources they can't control and gouge the rest of us to access--like renewables--will we break ourselves from this stranglehold. That makes the President's wind, solar and conservation initiatives all the more critical for the well-being of the "real" economy and the average American consumer.
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