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What's Up with the Price of Gas?                           Image

 

        This is question that has a lot of people guessing and at the same time paying a lot more for an essential commodity in American life. The real question is why are prices so high? Many explanations have been forthcoming in the mainstream media that on the surface seem plausible and correct. Yet there is a lot of money to be made in the oil industry by raising prices so rather than simply accept the Corporate Press's trite and at times condescending 'explanations', I thought I would do a little research on my own.  

 

The latest refinery outages can be found on Bloomberg.com, this is a pretty good place to start to discover which refineries are not working at capacity and for what stated reasons. Another excellent resource is a study done by Marcie Peters (go there). These two give a fairly good picture of some of the problems in the industry today.  A cursory look at the Ms. Peters study show a marked increase in refinery fires leading up to and especially just after the Y2K non-event (see her chart). This is most unusual and strange that such a exponential rise in oil refinery explosions after the widely reported Y2K 'non-event' should remain outside of Media reporting after such an unprecedented  rise in gas prices.  Ms. Peters excellent research and careful disclaimers are the mark of a true researcher and her work is to be commended, as much as the well timed sloth and selective blindness of the mainstream press is to be condemned.  While the world is quick to keep any and all discussion of recent non-Y2K problems from, the Oil Industry to the 15% correction in the Dow since 1/1/00 as 'not Y2k related', the simple fact is that the mainstream press has not bothered to look too closely at the oil industry and is probably less inclined to look too critically at Wall Street from which millions of advertising dollars are generated. While it is irresponsible to claim that both events are solely or even mostly Y2K related, is also irresponsible to say that these events have absolutely no Y2K significance. Sixty-five oil fires in less than one month is significant, a drop in stock value of 15% is significant. It is interesting to note that these are the very things many of the Y2K doomsayers, who have been roundly condemned for being 'wrong', were predicting long before all these 'non-events' occurred.

 

OPEC

This is every the US media's bad guy. If oil prices go up, blame 'those Arabs', 'they are greedy' and so on and so forth. The fact of the matter is OPEC has not been very effective in keeping prices at high levels for very long. Usually one nation will soon break ranks and sell oil cheaper than the 'official' price to gain market share and more profits. OPEC has gained some continuity lately but the recent spike in prices is as much a factor of market trends as it is greed (and not just OPEC's). Unknown to many Americans is that non-OPEC countries produce a significant amount of oil. OPEC still has significant leverage in oil pricing but they are far from a monopoly.  The slow but noticeable Asian recovery and a fast paced US economy have caused an increase in demand. Also the general fall in commodity prices experienced world wide over the past few years was bound to come to and end sometime. These low prices helped fuel the US economy and keep inflation at very low levels for the past few years.  These low prices were, however beginning to have negative effects on many oil producing countries that were dependent on oil revenues for their economic livelihood. The drop in prices (to $10 a barrel) coupled with the Asian Recession was a serious economic blow to some oil producing countries.

 

Yet it is very difficult to believe that, despite the fiscal pressures felt by some oil producing nations, that they could finally muster the wherewithal for agreements that would cause the kind of unprecedented price rise that is currently taking place.  Especially when one considers that a significant portion of oil is produced by non-OPEC nations. Usually a war or some other political crisis must ensue for such a steep increase.

 

It must also be noted that the "Wild, Wild East", those nations located in the Southern tier of what used to be known s the Soviet Unions held tremendous promise for an increase in oil production. The hopes of quick production in this area are a pipe dream as political instability, wars and political infighting has seriously hindered what could one day prove to be vast reserves of oil. The key word here is 'one day'. Investment in this region will return only with greater stability. Suffice it to say that the worlds current oil producers are, at least for the foreseeable future, tomorrow's oil producers.

 

These factors all must be considered when attempting to understand the current spike in oil prices. Oil is still the motor of the industrial economy. Despite the government/Wall Street hype of a 'new economy' that runs only on Pentium processors, oil's importance is not going to change anytime soon. The fact that the mainstream media has 'overlooked' these issues and the 'non-Y2K' aspect of this price rise portends a lack of honesty we have all come to know and loathe in the establishment media. A certain degree of honesty is needed here, before the (albeit unlikely) event of gas lines and flaring tempers haunts America one again, and the people find scapegoats of their own making.

 

Copyright 2000 Mark S. Watson

 

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