Political hot air provides no solutions for high gas prices..

{Souix City Journal) Hot over gasoline prices? There’s more than oil companies to blame. Some cool thoughts: 1. High priced gasoline is better than a short supply.
2. Gasoline is produced from crude oil traded on the world market. Prices are not set in Dallas.
3. Main forces determining the price of oil are: World demand, adequacy of supply, currency exchange rates, and an unofficial speculative pricing system that buys contracts for future oil deliveries over short periods of time.
4. Government taxes on gasoline at state and federal levels.
5. Demise of independent, competitive gas stations.
6. Environmental rules on pollution and seasonal gas blends.
7. Companies like Exxon, which had over $10 billion in profits for the first quarter of 2008 are stockholder owned. Company management must answer to owners. Okay Mr. Know-it-all, if you have all the answers, convince me they’re not just ripping us off. Just a few years ago you could fill your tank for around $25. Now it costs double that. Well, here goes with what I’ve learned from a lot of reading about the oil and gasoline markets. I do know from personal experience that shortages of gas are serious and disruptive. The Nixon administration during the Arab oil embargo of the early 1970s turned a problem into a near catastrophe. Bureaucratic bungling and rules that wouldn’t work. Government action that many plead for right now is not the answer. We should have opened the arctic oil potential 20 years ago, but nobody then had the guts to push it. Cut gasoline taxes for the summer now? That’s just short term and no solution for the long run. Who sets prices? Actually, oil is traded on the world market plus some speculative betting on pricing trends over short periods like a month or two. These “betters” risk investor money on contracts for future delivery. If oil prices keep going up they will sell the contract for a fat gain. If they fall speculators face big losses since they have to sell a contract for less than it’s worth on their books. Agricultural commodity prices are set the same way. A big speculator can get very poor or very rich literally in the blink of an eye. Speculation in the sub-prime mortgage market worked the same way and got us in the current trouble. State and federal gasoline levies figure into fuel prices, but revenue is needed for highway maintenance and construction. There’s no give there despite suggestions from Senators Hillary Clinton and John McCain for a summer moratorium on the taxes. The demise of independently owned service stations means that competitive factors no longer affect the consumer market for fuel. On the other hand, independents died off long ago because they couldn’t make it financially. Environmental rules peculiar to some cities and states necessitate changes of seasonal fuel blends. Oil companies like Exxon are huge enterprises that generate substantial profits which to the buyer of $3.60-a-gallon gasoline seem obscene. In 2007 Exxon profits, a little less than eight per cent, were below industry standards in the U.S. I don’t have that percentage for the first quarter, but the money guys on Wall Street were perturbed Exxon didn’t meet profit expectations. Well, who cares about Wall Street’s money-changers? Yet, those who run an oil company have to be concerned their stockholders might also be disappointed, sell and run down company stock. Then there’s less money for exploration. And last, but certainly not least, the trouble with our dollar value now at around $1.60 against the Euro. The unfortunate, and in my opinion, criminal speculation in the real estate market aided by the government did that to us. Now we have to pay around 30 percent more for oil on the world market because the dollar is worth less. Too bad, you might say. Still Exxon and others have to cope with the inevitable slackening of the world supply of oil. Saudi Arabia, for instance, is currently developing a vast new field it hopes will help them keep ahead of the demand from countries like China and India.. In an election year you can bet politicians will come up with “solutions” to high gas prices that will in the future make the problem even worse. Price controls? I hope not. Tighter rules on the speculative market? Might be very good if done right. Conservation? Of course.

Other energy source research? Right on.

Political hot air? No, no, no.