The blame game: Why the big numbers at the gas pump?

A customer fills up about one mile from the White House.
REUTERS/Larry Downing
A customer fills up about one mile from the White House.

The day of the $100 fill-up is upon us. Stopping at the corner gas station to replenish your Chevy Suburban’s 30-plus gallon tank could easily set you back $115. That’s an astonishing sum for Americans accustomed to driving everywhere for everything at prices that are uncommonly cheap by world standards.

But get used to big numbers at the pump. The price of crude oil for July delivery broke the $135-per-barrel barrier on the New York Mercantile Exchange on Wednesday before closing slightly lower on Thursday at just below $131. Record high crude prices led, in turn, to an average per-gallon price of $3.81 at the pump and predictions that gasoline would surge over $4 as the summer travel season begins.

Oil futures prices have more than doubled in the past year, accelerating recently as projected inventories declined, and traders bought additional oil to cover previous wrong-way bets. “It is not a growing market,” Olivier Jakob, managing director of Petromatrix GmbH, told Bloomberg,com. “It is also facilitating the move upward [in price].”

Some traders expect crude prices to exceed $200 this year, driven not only by increased global demand and dwindling supply, but by investors who believe — no pun intended — that the petroleum industry has the world over a barrel.

China and India are demanding vastly more oil while the U.S. seems unable to modify its auto-driven lifestyle, at least in the short run. “The only realistic option that we have, and there is none other, is to use biofuels,” Vinod Khosla, the co-founder of Sun Microsystems Inc., told Bloomberg.

Finger-pointing on all sides

Absent speculators, the price of crude should be somewhere between $35 and $90 per barrel, oil executives told Congress on Wednesday. But Sen. Herb Kohl, D-Wis., said at a Judiciary Committee grilling of oil executives:  “People don’t get it. Demand is not crazy. Why are prices going crazy?”

The question prompts finger-pointing on all sides. Oil executives blame financial bettors. Financial bettors blame supply and demand. Some members of Congress blame oil companies for gouging and the Organization of Petroleum Exporting Countries for bottling up production. OPEC blames speculators, wasteful U.S. consumers, and an aimless U.S. energy policy. Everyone blames China’s growing fuel appetite.

The consequences have battered the U.S. economy for months, with these new developments on Thursday:

Ford Motor Co., after recording a $100 million first-quarter profit, announced that it no longer expects full-year profitability in 2009. It also announced further plans to curb U.S. production, blaming high oil and steel prices.
 
American Airlines blamed fuel prices as it began to absorb complaints about a new policy: charging a fee of $15 for each customer’s first checked bag. A wave of criticism began as the quality of air travel continued to decline.
 
“Everyone is going to try to beat the system,” said industry analyst Henry Harteveldt. “When you check your bags for free on Greyhound, but not on an airline, it’s a sad comment of the state of the whole industry.” American will lean heavily on federal screeners to check carry-on items, now expected to multiply and cause more crowding in security lines and in the aisles of aircraft.

“Before you get too upset,” wrote Wall Street Journal columnist Scott McCartney, “know this: Oil prices are just killing airlines … They are paying billions, yes billions, of added dollars in higher fuel prices.”

A finite resource

Amid all the accusations about who’s to blame for high oil prices (some Minnesotans will even blame higher gasoline taxes), comes the undeniable truth that petroleum is a finite resource that will be increasingly difficult to cheaply extract.

The Wall Street Journal reported that the world’s top energy monitoring agency is preparing a sharp downward revision of its oil supply forecast. The shift, said the paper, “reflects deepening pessimism over whether oil companies can keep abreast of booming demand.”

The Paris-based International Energy Agency’s inventory of 400 top oil fields won’t be completed until November. But, said the Journal, “the bottom line is already clear: Future crude supplies could be far tighter than previously thought.”

How to cope?

Americans can’t change their lifestyles in an instant, but that’s probably the inevitable solution. “The idea that global oil production will soon peak is rapidly moving from fringe belief to mainstream assumption,” Paul Krugman wrote this week in the New York Times. Old Europe sets a good example, he said, finding a way to prosper with gasoline prices exceeding $8 a gallon. Germans, for example, own smaller cars and drive considerably less. They shop locally and use public transit more often. And they live in pleasant but compact neighborhoods of a kind that barely exist in America.

“Berlin is a city of trains, buses and bikes, while Atlanta (about the same size) is a city of cars, cars and cars,” Krugman wrote. “Americans,” he concluded, “will face increasingly strong incentives to start living like Europeans — maybe not today, and maybe not tomorrow, but soon, and for the rest of our lives.”

Steve Berg, a former Washington, D.C., bureau reporter, national correspondent and editorial writer for the Star Tribune, reports on urban design, transportation and national politics. He can be reached at sberg [at] minnpost [dot] com.

Comments (3)

  1. Submitted by Tom Poe on 05/23/2008 - 04:30 pm.

    Wall Street Burger Shoppe announced it now offers $175 burger for the brokers down the street. Maybe we need to talk to the owner, and ask him/her why our gas prices are so high.

  2. Submitted by Ron Gotzman on 05/27/2008 - 08:57 am.

    The dirty little secret, the “greens” love high energy prices.

  3. Submitted by Mike Harrison on 05/27/2008 - 03:41 pm.

    We have been convinced that we should be ashamed of how we live. We were shamed into where we are by both internal and external sources. We have created epic worldwide disasters, which nobody has proved to exist, but we believe them as we believe in the theory of evolution even though it is still just a theory. It is our shame or pride that has put us in this position and regardless both are worthless. Name a nation in Europe that is not exploring for crude and natural gas. China is drilling 200 miles off the coast of Florida but we are not. Canada is increasing its production as well as Mexico but we should be ashamed and embarrassed to do so.

    We do have a choice that was not considered in this article and that is increased domestic production. In 1994 when President Clinton vetoed drilling in Alaska, we knew eventually this would come, that was the start of the where we are currently in today. Realistically we know biofuel will not work, it gives us the choice between our fuel tanks or are stomachs, I supported right now, but it is not the answer. We have reserves in this country both tapped an untapped, we never ran out of oil it’s just that in the 70s OPEC oil was cheaper than American oil so that’s what we purchased and a industry almost died. The oil is still there and we can get it so why don’t we?

    Why don’t we? Half the countries complaining about NAFTA and how all these good well-paying jobs are leaving our shores but yet they are against the creation of high-paying union jobs which the drilling produces. We complain about her trade deficit and yet we have an opportunity to keep the money that is in our pockets in our country and not sending it to countries that would be just as comfortable fueling us or killing us. No, make absolutely no mistake about this, we created this problem using our brainpower. We conflicted and inflict this on ourselves.

    The answer is not difficult we must increase domestic production and increase research into alternative fuel sources.We must reduce our consumption and increase our production. We have made a decision to be stubborn and not realistic, we knew four dollars a gallon would happen, but we hoped we would find the magic alternative fuel before we hit it.

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