The Politics of Oil: The Discourse Must Change

We strongly feel that the leaders of both political parties are not only headed in the wrong direction with respect to gas prices, but we also worry that they fundamentally misunderstand the factors behind the current situation at gasoline stations around the US. Public statements by political figures over the past several days would seem to suggest that oil companies and their record profits are the sole factor determining the price of gasoline. Not only is this untrue, but it is dangerous to give the American people the impression that only oil companies are to blame. The American people need to understand that the phenomenon of high gas prices cannot be attributed to a single source. They also need to understand that no one political party will be able to fix our current woes. The major factor that determines gas prices is the price of crude oil from which gasoline is derived. When crude oil prices are high, so are gas prices. The following are just a few factors that affect the price of a barrel of oil: 1. Oil companies do not single-handedly determine the price of oil. The price of oil is set on the crude oil futures market. Simply put, these prices are affected by supply and demand because, at present, oil trades in a global commodity market where increased demand or reduced supply in one place instantly translates into price shifts everywhere. A variety of publicly available information sources show that supply is relatively static at the moment, while world demand continues to grow as economies grow.

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An Economist response, or is it a techie Sunday?

Nor am I going to argue, at present about the longer-term existence of large volumes of oil. Rather, I would argue that the problem that we have is of getting an adequate supply of oil, each year, to meet the demand that there will be for the oil in that year. Under the current methods of production, and against an increasing level of demand it is becoming more difficult to produce enough oil to meet that demand. There are two major reasons for this, neither of which is properly recognized in the Economist article. The first, and most critical issue, is the one that we call depletion. When an oilwell is first put into production, the oil flows into the well due to the pressure difference between the fluid in the rock, and the fluid in the well. If there is no difference in pressure, then no oil flows, (see Newton) and the greater the difference in pressure, then the higher the oil flow rate. As the oil flows out of the well, however, it reduces the pressure in the fluid. (Simple, crude experiment - get a bottle of soda water, shake it up and stand it in the sink. Open the top. The gas pressure will drive some of the water out of the bottle, but after a short while the pressures are equal and more than half the water is still in the bottle. )

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Desperation

America commuted back into the unknown country of $3-plus gasoline and $75-plus oil (per barrel) last week, and President Bush revisted the Tomorrowland of hydrogen cars in the absence of any reality-based response to the global energy crunch that will change all the terms of America's "non-negotiable way of life." Actually, we are negotiating, or bargaining, as Elizabeth Kubler-Ross once put it in describing the sequence of emotional reactions of humans facing certain death: denial > bargaining > depression > acceptance Events seem to have dragged us kicking and screaming beyond the sheer denial stage, since this is now the second time in six months that oil and gasoline prices have ratcheted wildly up. Something is happening, Mr. Jones, and now we want to talk our way out of it.

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The Biggest Gas Station on Earth

Now that gas is topping $3 per gallon, we should consider the heavy price the American people have paid to ensure that profits continue to soar for the oil giants. In 2002, before the war, Saddam was producing 2.6 million barrels of oil per day even with the debilitating sanctions still in place. Currently, (given the success of Iraqi resistance attacks on pipelines) Iraqi oil production has dropped to a meager 1.1 million barrels per day. In other words, Bush’s war has taken 1.5 million barrels a day “off line”; the precise amount the global market requires to reduce prices to the $45 per barrel range. Consider this: the United States has spent roughly $300 billion on the war so far. At 1.1 million barrels per day (396 million barrels per year) we are currently spending $274 per barrel which translates into $12 per gallon at the pump. $12 per gallon!!!

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