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:
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.
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.
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.
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:
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.
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.
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.