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Where the pain is

ASK THIS | March 29, 2005

For some people, stratospheric gas prices are the biggest news story of the year. Here are a few questions that ought to be answered.

By Dan Froomkin



Q. How did gas prices get so high?


Q. What could have been done to prevent prices from reaching this level?


Q. What should the Bush administration be doing or saying about the situation now?


Q. Would Bush's energy bill have made things better? Could it now?


Q. Is there no way to rein in the record oil industry profits?


Q. Will this change car-buying habits?


Q. Typically, high energy prices can lead to recession. Any signs of that so far?


Q. How much is all this costing Americans?


Most oil industry experts say that high gasoline prices are a direct function of high crude-oil prices – and that unlike in previous cases, where suppliers or refiners reduced production to increase prices, this run-up is primarily a function of increased demand.


In fact, with the industry operating near capacity, there would be little way to make up for a loss of production or refining capacity if an accident, a terrorist attack, or politics caused a sudden interruption anywhere. That itself may be further increasing the pressure on prices. "There's a lot of fear in the market," says former Clinton administration energy policy staffer Ron Minsk. That results in a "risk premium."


Experts like Minsk and energy economist Philip Verleger agree that there's really nothing Bush could do right now that would significantly reduce gas prices in the short term. For instance, it's not like he can instantly role back the Hummer culture.


Verleger says it might have made a difference if Bush had come in to office in 2001 and talked about the problems ahead, urged conservation, pushed for a gasoline tax and embraced the Kyoto global warming protocol. But now? "Nobody's bothered to tell Americans it was coming, so everyone's driving these monstrous SUVs," says Verleger.


Minsk says if Bush had pressed OPEC a year ago to fully open their spigots, when they still had spare capacity, the run-up in prices might have been less severe. But by and large, he says: "There's practically nothing that they can do other than hope nothing goes wrong."


Whenever prices go up, someone suggests releasing oil from the nation's Strategic Petroleum Reserve as a way to reduce prices. But the White House – under both parties -- has generally resisted such pressure.


One thing Bush could do to prevent things from getting worse, at least, is try to keep everything running smoothly – and not tick off any oil-producing nations. "Venezuelan President Hugo Chavez can do a lot more to effect the retail price of gas in the United State than George Bush can," says Verleger.


Ask administration officials what they think about high gas prices, and their stock answer is that congress should have passed Bush's energy bill. Here, for instance, is Treasury Secretary John Snow on the Newshour with Jim Lehrer earlier this month:


"JIM LEHRER: Is there anything special that you or others in the administration are doing trying to control energy prices?


"JOHN SNOW: Well, I think the best thing we can do for the short term is move good energy legislation through to the Congress; I'm encouraged that there's some prospect for that now."


It does not, however, take much to knock this preposterous response down.


"JIM LEHRER: But those are long-term solutions, are they not, rather than short term?


"JOHN SNOW: Well, they absolutely are, but to the extent that the markets see us taking positive actions, I think we would get a good response, because the markets are anticipating the future as well as the present, of course."


Says Verleger: "What he should have said is that in the short term there's nothing they can do."


And even the Bush Energy Department's own study of the energy bill said its effect on gas prices, even years into the future, would be "negligible".


In the meantime, oil company profits are at record levels, there are no imminent signs of recession, and there are only mixed reports that consumer demand for large cars is slackening even a little.


But one thing is for sure: Americans are having to spend a lot more for gas, and that means they're having to spend less elsewhere. Last year, Minsk calculated that higher gas prices caused the typical American household to spend $360.25 more per year for gasoline during President Bush's first term than it did during President Clinton's second term. He called it a "de facto gas tax that was never proposed, debated, or enacted, but is as real as if it had been."


Maybe it's time to update those numbers, because this "gas tax" is more real than a lot of the other things we're writing about these days.




Here are some recent news stories that offer context and information: 


LA Times: Lofty oil prices are taking a toll on a number of industries as businesses and consumers dig deeper to pay for fuel, but the overall U.S. economy so far has escaped serious harm.


San Francisco Chronicle: Demand is high, refineries are running close to capacity and speculative investors are pouring money into the crude oil market. Together, those forces may signal a fundamental shift in the oil and gasoline markets, many industry analysts say. With the worldwide demand for oil growing at historic rates, and with much of that growth based outside the United States, higher prices may be inescapable.


Philadelphia Inquirer: The stock prices and profit of large independent refiners - companies that make gasoline and other petroleum products but do not pump oil from the ground - have skyrocketed in the last couple of years, as demand for petroleum products has grown faster than the industry's capacity to produce them. Also see: The Business of Refining.


Reuters: A group of former national security officials has taken up the cause of weaning U.S. drivers from their oil addiction -- normally the realm of environmental groups -- and asked the Bush administration to spend $1 billion on lighter, more fuel-efficient automobiles.


Bloomberg: Big Oil is at planning at least $11 billion of refinery additions as worldwide demand pushes gasoline prices to a record.


drivel on
Posted by gerry connery -
09/02/2005, 09:51 PM

i have never heard such nonsensical drivel about the energy crisis as the comments on your website.
the reason we have a crisis is because our gutless, politically correct bozos in congress have been listening to the environ(mental) wackos for decades.no drilling,no new refineries, no nuclear power(they even dismantled a perfectly good nuclear plant on long island which is severely hurting the economy), no coal,no pipelines, no anything. if this group of zealots had their way, we would all be on a ration system with these pinhead elitists determing exactly what is good for everyone - sound remotely like socialism? their dream seems to be a utopia with everyone walking, bicycling, carpooling and defecating in their own little backyard night soil garden. and while the peons toil, this group of nitwits will jet around the country talking to the choir about the movement. what a bunch of losers!!! if we continue to listen to these dullards, the best years for america will be behind us.
if this mentality had been with our founders, we never would have gotten past the delaware river. there is plenty of energy if we allow the great american entrepenurial spirit to be unleashed again from the envirowackos.
we have oil all over the country; we have huge amounts of shale oil;we have vast coal deposits;we have the safist and cleanist energy in the world- nuclear power; we have vast gas deposits and we have america's vast research capabilities to work on fusion, cleaner coal etc., etc.
it is only the doom and gloom idealogs with no plan or hope for the future that seem to inhabit your website. this is the group who think the hummer is the main problem. if you took every car off the road now and replaced them with hybrids(with their bogus inflated gas mileage) we would be exactly in the same place as we are today in five years if we don't do more exploration and research.
it's time for real americans to send this group of nimbies and defeatists to the ash heap of history and turn the american genius loose.

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