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The Oil Drum: “A Plague o' Both Your Houses!”

In Shakespeare’s Romeo and Juliet, as Mercutio lays dying, he curses the two families whose rivalry led to his death: “A plague o' both your houses!”

The editors of The Oil Drum, an online forum that encourages an open, rational, and fact-based discussion of energy issues, have taken a similar—albeit less dramatic—position with respect to the political jockeying between Republicans and Democrats in the US over the issue of gasoline prices. The editors—who are “ideologically diverse”—took the unusual step of issuing a press release emphasizing their conclusion that the discourse around the politics of oil 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 following are among the factors affecting the price of oil, according to The Oil Drum:

  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.

  2. We have provided evidence many times at The Oil Drum that the output of major oilfields is declining and that we may now have reached a peak or plateau in global oil supply. Oil companies have not been able to increase production for a number of years, and it is unclear that OPEC is accurately reporting their reserves. Even if there were significant sources of high quality oil remaining, it is getting increasingly difficult and expensive to drill. These factors, along with aging infrastructure for oil exploration and a retiring workforce are also contributing to high oil prices.

  3. The geopolitical situation is volatile, and an astute citizen may notice that every time there is news from Nigeria or Iran, the price of oil goes up because of the potential and real effects of these situations on world oil supply. Again, oil traders are fearful that the supply will not remain stable forever.

  4. Countries like China and India are industrializing at a great pace, and while we are accustomed to obtaining oil at a comfortable quantity and price, it will be impossible (and immoral) to deny similar resources to these countries. China is working furiously to secure new oil supplies, and they're content to negotiate with countries we're reluctant to deal with, like Iran and the Sudan.

These points demonstrate that disruptions in the supply of oil that affect the price of gasoline at the pump are not just a temporary glitch. For various reasons—decreased discoveries of new oilfields, geopolitical instability, international competition for oil supply—we can no longer assume that we will be able to consume as much oil as possible, or ever get it again for $1.50 a gallon.

Demagoguery and grandstanding are not strategies for addressing our energy problems.

The editors make three recommendations for beginning to address those problems:

  1. Maintain the gas tax. Eliminating the gas tax temporarily or permanently will only worsen our dependence on oil by disincentivizing the innovation of oil alternatives and oil conservation efforts.

  2. Both mainstream American political parties should stop accusing convenient scapegoats of price gouging or price fixing and instead educate the public about how the price of gas is actually set.

  3. Government should be focused on helping us cure our “addiction to oil.” The answer does not lie in lowering gas prices, which will only encourage people to drive more and further waste our valuable resources. As the Department of Energy funded Hirsch Report on Peak Oil laid out, the consequences of not taking steps to transition away from oil could be dramatic to our economic system. Appropriate solutions include large-scale research, development, and implementation programs to improve the scalability of alternative sources of energy, other projects geared towards improving mass transit and carpooling programs across the country, providing incentives to buy smaller and more fuel efficient vehicles, and promoting a campaign to increase awareness about conservation.

Full discussion of the release is ongoing at The Oil Drum.

Comments

Cervus

I have only one word for our politicians:

Feh!

While they bicker, we have several hundred million gallons of biodiesel refineries under construction. We have a coal industry ramping up production and proposing large numbers of CTL plants. We have increasing private investment in algal oil.

I'd pay $4 a gallon for a reliable domestic energy source.

It's my view that we cannot depend on government to get us out of this mess. Doubly so in an election year. We see progress on the alternative energy front every day here on this blog.

Andrey

Typical enviro-leftish "get people out of their cars" BS.

gerald earl

Only a sentence or two of leftish.much of the body of the story on alternatives could be termed security rightish.The main point is the two parties are full of crap on the issue.Like a bunch of chimps winging excrement at each other.We need to insist on leadership and results from them,not gotcha politics.Left and right must tell thei reps they dont want to line up behind them for a partisan food fight.Tell your reps{left and right}that you want a roadmap to independent and clean power.their fingerpointing about prices usually leads to a bandaid over a festering sore.Im sick of it,how about you?

Rafael Seidl

Perhaps the tone of the discussion would change if the cost of the war in Iraq were at least partially chalked up to the fact that it happens to be the only country in the world today that has oodles of easily recoverable oil that isn't being produced - and that this was a major (if unspoken) reason for toppling Saddam.

Even a fraction of the $250 billion tab would have bought an awful lot of alternative fuel R&D + initial production capacity.

Andrey - not sure what you are referring to, neither the article nor any of the comments suggested getting people out of their cars. We all know that for reasons both practical and emotional, cars will remain the #1 mode of personal transportation for the foreseeable future.

odograph

Leftish? When did it start being Right/Moderate to endorse the current cash flow to the middle east?

I'm sorry but those are the choices, consume less oil, or put more checks in the mail.

odograph

Oh, and Andrey, I don't think it would have been picked up by Pajamas Media if it was "lefty"

http://pajamasmedia.com/2006/04/oil_the_discourse_must_change.php

Joe-in-Texas

Regardless of how or how much the Big Oil companies are contributing to the rise in gasoline costs. The preception given out by the Big Oil companies is GREED.

At a time when Americans are paying record prices for gasoline a Big Oil executive gets a whopping retirement package - more money than most Americans make in a lifetime. And the published profits of the Big Oil companies are is gross disproportion to the plight of the everyday American.

Most Americans just believe that the excessive amount of profits Big Oil is making in a time of war and global terror is just not right. Americans that everyone should sacrifice not just the consumer. Motor fuel is not an option - people must get to work. Lower income Americans are taking a hit just trying to get to work in the morning.

Gasoline is not in the same category as toothpaste, donuts, and kids toys - gasoline is a necessity of life - no work - no money - no food.

If Big Oil doesn't want the 'Black Eye' from the American public - they should reconsider their retail pricing. It does not have to be as high it is. If margins were as thin as pretended - there would not be record profits. Thin margins and record profits are not compatible.

t

Excellent editorial! Both Dems and Republicans are engaging in stupid short term thinking. Eliminating the gas tax has got to be the stupidest idea yet. Yeh, lower the prices so we can ensure no conservation or alternatives. That's the ticket.

And since when did conservation become leftist? Get it? Conservatism and conservation, same root.

Someone please tell me why it's a bad idea to conserve oil and other resources for that matter. The greens and the neocons are together on this matter. Nothing wrong with mutuality of interests.

And further. Don't tell me if it's lefty or righty. Tell me what's wrong with it. Labels just lead to knee jerk thinking.

Ash

Two things:
odograph: You apparently didn't even read the article.

t: knee jerk "thinking" isn't thinking at all.

I agree with a primarily free market solution to energy problems. Not bandaids, and not myopic government subsidies.

odograph

Actually, I did.

Joseph Willemssen

"A plague on both your houses" would be meaningful if "both houses" had power. The fact is that Republicans control the government absolutely, get almost all of the oil money going into politics, and "coincidentally" we see huge spikes in gas and natural gas prices during the time they're in power?

Are there many factors which lead to the current situation? Of course. But intentional neglect is one of them, and no one forced Republicans to start a war with Iraq, threaten to nuke Iran, and actively encourage problems in Venezuela. And one of the main reasons that China and India are booming to the extent they are is because we're the ones giving them the money to do it.

Couple that with policies which reward waste (like the 6,000+ lb SUV tax benefits), then it's pretty clear how things come about. This didn't happen overnight, but there's plenty of things that could have been done before to keep it from happening. And now several trillions in windfall profits are being made in energy, so it's pretty naive to chalk it all up to the "invisible hand".

It's good to focus on solutions, but one part of good solutions is knowing where the problems are actually coming from and why.

JMartin

Let the market work and it will. As noted above, there are numerous examples in this site of industry moving to deal with the situation -- from developing new fuels and technologies to adopting the use of hybrids and EV's.

The public will be slower to change, and the Government just makes things worse by trying to scapegoat the oil companies. Of course this is really just slight-of-hand as they know he investigations will show nothing. The reality is that the big profits are not due to operating margins or tax fraud, but gains on assets -- you know, like capital gains that we want to give favorable tax treatment to.

In any event, we need not blame the politicians. They are all just lawyers. They don't understand Econ 101, or anything else, except how to get elected. Why are we not blaming the Media for failing to educate the public? It seems to me that is their role. Both parties have become pretty useless when it comes to vision and problem-solving, so we should just hope the price of gas keeps rising. If it does, the solutions will emerge, and the "Invisible Hand" will save us. Or was that Intelligent Design?

Joseph Willemssen

Gasoline is not in the same category as toothpaste, donuts, and kids toys - gasoline is a necessity of life - no work - no money - no food.

You believe that without gasoline (and a car) you'd die?

Look down. See those two things at the end of your legs? They're called feet. Over billions of years of evolution (or instantaneously if you're a creationist) you were given the ability for mobility through walking. The fact that people choose to be dependent on cars and gasoline doesn't change the fact that there is no existential need for either one, considering how humanity and the planet survived perfectly well for billions of years without them.

Car and oil dependence are the result of choice.

odograph

Look "market" guys, I might be closer to you than you think ... but the thing you should seen in "A Plague o' Both Your Houses!” is that both parties are pushing "statist" (to use the lingo) solutions.

When The Oil Drum makes the "lefty" recommendation that "Government should be focused on helping us cure our 'addiction to oil.'” they don't name any particulars that have not been put forward by congressional Republicans and/or the President.

I mean, I am actually an old-line conservative, who thinks government should fund basic research, and leave product development and deployment to private companies ... but who was at a freaking R&D facility for hyrogen cars this week? That's right, GWB.

The problem is that this has (as The Oil Drum says) a mess of government mismanagement coming from all points of the political compass.

Pfft. Maybe you want to say from your keyboard that we should go "free market" - well, point me to ANY national politician that is doing that.

Joseph Willemssen

Let the market work and it will.

Anyone who has actually taken economics courses would know that that statement is one of the biggest myths ever perpetuated. There is no "free market" - never has been, never will be. And it's because of "market failures", mostly, that people intervene to deal with problems that arise (eg, pollution, food safety, etc).

The key is not relying on the "invisible hand" but knowing how to make the best influences on prices to get the right outcomes. Are politicians to be trusted to do that? Of course not - there's plenty of corruption and stupidity to go around. But there are also plenty of examples of intelligent policy which has led to outcomes the "free market" would have never achieved on its own (the Internet which we're all using to bloviate about this being one example).

JJ

Not to worry -- High prices will make ALTERNATIVES competitive -- that's what we want/need -- there will just be a small hiccup before we get there -- there as in -- wind, solar, biofuel, ethanol, hydrogen, and fuel cell future (plus all the others - can't think of them all now but if you read this site you know what they are). Some day OPEC will wake up and say why do they (left-e, right-e, green-e) hate us and then it will become a religious profiling thing but then ,hey, who cares -- we'll be well on the road to producing a cleaner, carbon free and sustainable future!!

odograph

JJ, don't forget feet and bicycles.

(Both Kerry and Bush ride, so bicycles must be politically neutral ;-)

Joseph Willemssen

"Both Kerry and Bush ride, so bicycles must be politically neutral"

And the President walks to work.

wintermane

Actauly the oil companies are making soo much money right now because they must in oder to pay for the changes they will need to make in the next 10-30 years to still provide all of us with some sort of fuel for our cars.

Its gonna cost trillions over all to convert and they know it. Some are starting right now while others are planning to make a killing on oil for as long as possible then buy into whatever comes out as the dominent fuel afterward.

As for iraq its main purpose was always to provide a war we couldnt lose but couldnt easily win either. A test to see what broke down when fighthing such a war so it doesnt happen a few years from now when the REAL wars start breaking out and millions instead of thousands of lives are on the line.

Due to the iraq war we have learned a ton about what we have that wasnt working and what we can make and how to make it so we are better at fighthing such wars.

In the end the iraq war prolly saved a million us lives overe the next 50 years by getting our combat act together before it was too late.

Its all just one big ass training exercise because we are fat and sloppy and out of shape.

JJ

ODOGRAPH -- GOOD POINT !!! BICYCLES !! I FORGOT BICYCLES !! NOTE: I hace 157,000 miles on my bicycle and only 7000 miles on my car and it's a 2003 model which means I average just about 2300 miles per year in my car!! GOOD POINT

Rafael Seidl

Wintermane makes a good point. However, oil companies will only invest in alternatives to drilling if (a) there is a perceived demand for the alternative products and (b) they run out of new places to drill in.

At current prices and given the precarious politics of several key oil producing nations, (a) may apply for a subset of consumers (less so for corporate customers).

However, the US oil industry has not yet conceded point (b). The Bush administration has made it easier to drill on public land in the lower 48 by granting a $7 billion tax break to the oil & gas industry. There are also frequent attempts to open up the ANWR to drilling, to expand tar sand and oil shale exploitation etc.

Beyond government policy, this is driven by the market requirement to maintain or expand "proven reserves", a measure of the total volume of oil a company expects it can *economically* bring to market in future years. In other words, the lowest price is king.

Those record profits would go into alternative fuel R&D quick smart if the definition of "proven reserves" were changed appropriately, e.g. by capping the emissions of GHG and nuclear waste tied to the energy contained in the products delivered plus the energy required to bring them to market. That would do wonders for xTL, biodiesel, ethanol, biomass methanol, biogas etc.

argod

Here is what the market has been doing.

"Again, from 2/10/06 to 4/7/06, total net petroleum imports into the US dropped 13.2%, which corresponded to a 20% increase in light, sweet crude oil prices. There is one market for light, sweet crude oil (at least when the US government is not putting oil into the strategic petroleum reserve): refineries. If refiners don't need the imports, why are they bidding up the price of light, sweet crude oil?"

above quote from - http://graphoilogy.blogspot.com/

t

My impression is that capital expenditures are not very well correlated with profits. Furthermore, giving ex CEOs 400 million retirement packages probably doesn't do a great deal for production.

In any event, the classic economic argument is that we shouldn't mess with the oil companies or that would restrict production. This might hold some water but all the profits in the last several years have done nothing to increase refinery capacity.

And, besides, I don't have a problem with a cut in production, as this will only hasten the day when we move away from dependence upon oil.

If we truly have or will reach peak oil, we don't need incentives to just steepen the curve on the back end.

Harvey D.

Oil and gasoline prices are so competitive (in our so-called free market) that all gas stations (regarless of the Brand) raised the retail price from $1.05 to $1.15 per liter, at exactly the same time last week. This has been going on and on for years. We're told that this is definately NOT price fixing. Just plain repetitive coincidences. We're supposed to beleive that B.... and we do.....

Some 100 years ago, a US built car could travel about 40 miles on a gallon. Today, you're lucky if you get 20 miles per gallon on the average US made car or light truck. Don't you think that, with normal technological progress, todays cars should go at least 100 miles/gal.

What happened to reverse the normal progress trend? Is it due to a collusion between major players? Is it our own fault for not demanding more efficent vehicles and buying all those hugh 4 x 4 and pick-ups gas guzzlers? Did the government play a role, with special incentives for the purchase of unwarranted large vehicles? Is overly cheap oil/gas (specially in USA and Canada) one of the main reason? Is our lack of respect for the environment part of the problem? Did we abdicate our basic citizen reponsabiity and fall in too easily to the Big Three propaganda that Bigger is Better and Safer?

We may all have some responsability for what is happening. We are overdue for an attitutde change. We the people...., can change the future by changing our behavior and stop buying those 2 to 3-ton monsters. We don't have to go back to horses and carriages or bicycles but a 40+ mile/gal car will get you from A to Z just as quickly than a huge 4 x 4. Our teenagers don't need a 2 1/2-ton 4 x 4 pick-up to go to school, an electric scooter would do the job just as well etc etc.

Let's wake up!!!

Ed

I'm with Harvey D. It's a voter and consumer choice world and we, as citizens, have the power to change the energy equation. Why wait for the government or the oil companies to fix the problem or "do what's right" ?

It's all about consumption. Surpisingly a parked SUV 4x4 uses the same amount of fuel as a parked Prius. So we can reduce fuel demand just by driving less even with gas guzzlers.

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