| Home | Blog | Ask This | Showcase | Commentary | Comments | About Us | Contributors | Contact Us |
Ask the candidates what they’d do about $3.50 or $4.00 gas pricesASK THIS | November 330, 2007There's no law that prices at the pump must keep soaring, it only seems that way. Peter Ashton puts his finger on the reasons for the severe spikes (more than 100 percent since Bush became president), has ideas on how to combat them, and offers questions for reporters to put to candidates. By Peter K. Ashton With the Presidential election less than a year away, gasoline prices are now above $3 per gallon. This is in sharp contrast to just seven years ago in November 2000 when George Bush was elected and the average retail price across the country was $1.55 per gallon. Even when Bush was reelected in 2004, the average retail price was only $2.25 per gallon. Gasoline prices have risen an astounding 40 percent in just three years! Energy policy and gasoline pricing in particular would appear to be ripe topics for the upcoming presidential campaign as gasoline prices under the current oil friendly Republican Administration only move in one direction: up! To help focus the debate on the campaign trail, here are several important questions the Presidential candidates should answer. 1. One reason frequently cited for the upward movement in gasoline prices is the impact of futures markets. Yet the futures market is largely a “paper” market in which little physical crude oil or gasoline is actually traded, so what would you do as President to temper the influence these markets have on the price of gasoline? In recent years both crude oil and gasoline prices have become closely linked to the movement of futures prices – prices resulting from largely speculative trading in markets such as the NYMEX and the London ICE Futures exchange. These markets are largely unregulated, and trading is often dominated by a few large financial entities that are not directly involved in the oil and gas business, and are not motivated by the fundamentals of supply and demand. Improved oversight of trading behavior and some level of regulation of these markets would lessen price volatility and bring the pricing of gasoline and crude oil back under the control of markets where these products are actually physically traded. 2. Inventories of gasoline are now routinely maintained at minimum operating levels so that price spikes occur whenever there are short-term supply disruptions such as a refinery outage, pipeline shutdown, or even the threat of a hurricane. What would you do as President to combat these price spikes, and ensure adequate inventories of gasoline to meet short term disruptions? The minimum operating level for gasoline inventories in the United States is 20 days of supply. In 2000, the average inventory level was about 24 days of supply, which provided some limited cushion in the event of a short-term supply disruption. Today the companies carry the absolute minimum inventory level of 20 days of supply. The oil companies say they are saving money by carrying lower inventories which they claim to pass on to consumers in the form of lower prices. However, whenever a disruption in supply occurs, such as refinery outage, prices spike 20-30 cents per gallon for a period of several weeks. These spikes more than offset any possible savings from carrying lower inventories, and have netted the major oil companies billions in additional profits in recent years. 3. There has been no new refinery built in the United States in over 25 years, yet the demand for gasoline in the U.S. continues to grow at 1-2 percent per year and the processes required to make gasoline have become increasingly complex to meet various environmental regulations. What would you do as President to increase domestic gasoline production? The United States has become increasingly dependent on imports of gasoline to fill the gap between domestic production and demand. Most new refinery construction has occurred overseas, largely to meet increasing demand for transportation fuels in Asia and other rapidly growing areas. Without an effective policy initiative to increase domestic refining capacity and domestic production of gasoline, the United States is likely to fall prey not only to a crude oil cartel, but also a gasoline cartel where a few companies control the bulk of supply of gasoline and can control the price that is paid for gasoline. 4. Crude oil prices continue to move into unchartered heights. What can be done, if anything, to temper the rise in crude oil prices and increase energy security in the U.S.? Various factors have been blamed for the increase in crude oil prices, including continued uncertainty in the Middle East, unexpected increases in demand, especially in Asia, and the impact of speculative trading in the futures markets. As a country, the United States continues to become increasingly dependent on foreign oil, yet no comprehensive energy policy initiatives have been forthcoming. Without such initiatives designed to both temper consumption as well as improve the security of our energy supplies, we will continue to ride a roller coaster of price volatility for many years to come. [Also by Peter K. Ashton on NiemanWatchdog: The method behind endless gasoline price spikes.]
|
|
||||||||||
