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Why Are Gas Prices So High

February 27, 2012 by staff 

Why Are Gas Prices So High, The local price of a gallon of gasoline is on a fast trip up to $4 and could approach $5 by summer’s end, some experts predict.

Pump prices might jump 10 cents from one fill-up to the next. Everyone wants to know why so much, why now and who’s to blame.

Democrats are wrong to put all the blame on Republicans, oil speculators and oil companies. Republicans are wrong to put all the blame on fewer drilling permits being approved by the Obama administration.

Let’s remember there are no price controls, nor should there be. The price of fuel is set by market forces, many of which are not apparent to us consumers.

1. Is oil in short supply? Not really. U.S. oil imports are down 31 percent since 2005. Reserve stockpiles of oil are increasing, not dwindling.

Also, U.S. exports of oil are increasing. The U.S. Department of Energy says the United States now is shipping out of the country more than 3 million barrels a day, 6 percent more than its previous estimate.

Blaming the oil companies is pointless unless you also want to tell them they cannot export, which would be as irresponsible as setting a price limit on a gallon of gas.

Stockpiles are solid now, but future supplies are threatened. Iran is warning it will cut off oil exports to Europe, and the possibility of disruptive military action there increased after Iran recently refused to let U.N. inspectors check its nuclear sites.

Speculators react to such threats, but the anticipation of higher prices later softens the shock should these fears come true.

Calls from some Democrats to sell oil from the Strategic Petroleum Reserve are premature. The reserve is for a true emergency. If it’s used as a safety valve to try to relieve upward pressure on prices, it might not be there in a full-blown crisis.

2. Are we all to blame for using too much oil? Americans use more than any other country, but that’s not what’s driving up prices right now. The United States used 2.8 percent less gasoline in 2011 than in 2010, and we’re continuing to use less. Cars are getting better gasoline mileage, and rising prices discourage waste.

3. Should we blame Republicans for coddling oil companies and profiteers? No, even if California Rep. Nancy Pelosi wants us to. “Unfortunately, Republicans have chosen to protect the interests of Wall Street speculators and oil companies,” she said.

But it’s impossible to explain how punishing oil companies with higher taxes or more regulations would make them produce more gasoline at a lower price.

And as for price manipulation, if speculators could jack up the price at will, as some critics contend, we would already be paying $5 a gallon. Energy prices go up and down. If they were easy to set, the price of natural gas would also be high, yet it’s near a 10-year low.

4. Is the weak dollar to blame for more expensive oil? Partly. Oil is priced in dollars, and the Federal Reserve has made sure the dollar is weak. But while a stronger dollar would bring lower gasoline prices, it would also bring higher interest and higher prices for U.S. exports and thus less demand for them, and arguably a reduced chance of economic recovery.

5. Should we blame Obama for refusing to allow more drilling and for stopping the Keystone XL pipeline from Canada? Sure, but with U.S. production up, U.S. exports up, and demand for oil in India and China growing, a little more domestic production would not much affect prices at the pump. The pipeline to bring in more Canadian oil was a good idea, but there’s no guarantee all of the final product would be consumed in America.

Domestic oil production is growing, and that’s good for the economy. But don’t expect domestic oil companies to offer us $2 gasoline while the rest of the fuel-hungry world is willing to pay much more. That’s as unlikely as a car powered by its own windmill.

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