Senate Circus - Why are oil prices so high?

[RickSp]

On the news last night I watched clips of Senators demagoguing for all they were worth. It was stupid. It was embarrasing. I hope my 13 year old has a better grasp of economics.

"My constituents think someone rigged the price and someone - them - is getting ripped off," said Senator Pete V. Domenici, Republican of New Mexico. "Are you rigging the price of oil?"

Unfortunately, none of the oil executives responding by asking, "Senator, are you an idiot, or do you just play one on TV?"

"None of us knows much about pricing," said Senator Byron L. Dorgan of North Dakota. "But we see the pain of the consumers, and we see the gains of the companies."

Well, isn't that special?

I have no love for overpaid, overfed oil company execs, but I hate to see the sort of farce that went on yesterday on the Senate floor. The facts aren't terribly complicated. We had two major hurricanes which disrupted and in some cases destroyed production, refinery and oil pipe line capacity. Reflecting the drop in supply, prices rose to over $70 per barrel. Gasoline prices jumped from under $2.50 per gallon to over $3.00. As prices rose, consumption dropped and there was adequate supply of gas and oil everywhere except in the regions hit worst by the hurricane.

Of course, once the disruptions in supply were worked out the prices dropped again. Oil prices are back below a still high $58 per barrel and gasoline is selling at an average of $2.40 per gallon, roughly the same price as last March. Supply and demand market pricing isn't always pleasant, but it does work.

And yes, the oil companies have recieved some huge short term profits. Nevertheless, the oil companies in general have historically underperformed the stock market.

Gasoline prices in real terms declined for over twenty years between 1980 and 2004, encouraging Americans to waste energy with their SUVs. We have only recently reached 1980 prices in inflation adjusted terms.

Of course, the drop in prices does nothing to mollify the Senators staging the political theater or to prompt them to do anything to actually address the problem. I have no doubt that those on this list who already claim that the oil industry is part of one of their countless theoretical conspiracies, will cheer on the hectoring Senators. But that is their problem.



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[tman_ndsu08]

Indeed, the senators were very narrow sighted. Isn't it their job to be?

Oil and gasoline are world market commodities. There is nothing that can be done about that.


What can be done, however, is to give the oil companies access to the drilling sites that they need!!!!!!!!!! (read: ANWR).

[RickSp]

Is ANWAR the answer?

It may make some difference on the margins in a decade or so, but won't really change much, unless you happen to be a caribou. Improving gas mileage by 2 miles per gallon would yield savings comparable to the projected Anwar production. Of course, US gas mileage actually fell between 1987 and 2004 as more and more people bought gas guzzling SUVs.

The benefits of ANWR have been wildly oversold by its boosters and the risk have been equally overstated by its opponents.

[tman_ndsu08]

Quote by: RickSp Is ANWAR the answer? It may make some difference on the margins in a decade or so, but won't really change much, unless you happen to be a caribou. Improving gas mileage by 2 miles per gallon would yield savings comparable to the projected Anwar production. Of course, US gas mileage actually fell between 1987 and 2004 as more and more people bought gas guzzling SUVs. The benefits of ANWR have been wildly oversold by its boosters and the risk have been equally overstated by its opponents.

We won't know the truth until we drill!

[US Independent]

I don't care if a company has to increase gas prices to stay in business...however I think that the senators words were mispoken.

Gas companies increase prices and still sell gas (that they bought at a lower price) for a higher price.

It's called larceny.