Saturday, August 2, 2008

A Laughing Matter?

A lot of Americans are exercised over the price they pay at the pump for gasoline. This is important, because it’s the only exercise most Americans get. Who can blame them for being irritable? The nominal average price at the pump has gone up over the last 4 years from $1.74 to $3.87 per gallon. That means filling up those GMC Yukons, Chevy Tahoes, and Ford Expeditions is costing drivers over $100 a shot. Heck, you can buy a month’s worth of lattes for that (assuming you’re limiting yourself to only one a day). In real terms – price adjusted for inflation -- we’re paying almost as much now as we did in the 1980s, when U.S. automakers’ fleet fuel economy averaged 12.9 mpg.Due to the onerous “CAFE” standards imposed by resolute congressional lawmakers, these SUVs are today averaging a whopping 13 to 14 mpg on the way to Wal-Mart.

Pressed at the pump, Americans now resonate with arguments promulgated by concerned oil company executives (and picked up by savvy politicians seeking further corporate contributions) for removing restrictions on offshore oil drilling, and drilling in the Artic National Wildlife Refuge (ANWR). Both presidential candidates, John McCain and Barack Obama, previously opposed to drilling in these environmentally sensitive locations, sensing the mood of the public, have changed their tunes, seeking something American drivers will consider music to their ears, which are plugged with cell-phones, MP3 players, and, for concerned seniors, wax. Obama said recently that he would be willing to compromise on his position against offshore oil drilling if it were part of a more overarching strategy to lower energy costs. He said he’d always felt this way, but apparently only revealed his true feelings to Michelle, who gave him a fist bump for his willingness to compromise, and to do the dishes. McCain said, “What was the question, again?”

The Energy Information Administration, a government agency whose studies and analyses are followed closely by almost no one, certainly no one in government, argues that lifting the restriction on offshore drilling won’t lead to any additional domestic oil production until 2017 and at its peak in 2027, the extra production won’t have any significant impact on oil prices. Drilling in ANWR won’t produce crude before 2018, would peak in 2027, and during that time, won’t have any significant impact on oil prices. Who do they think they’re fooling? McCain said just the other day that industry executives told him that they could produce crude in a matter of months (120?). Well, he’s talking to the right people. They know their business. After all, they made the highest profits in history last year.

A lot of market-savvy politicians have argued that just lifting the bans on drilling would lower the price of oil and in turn, gasoline. Markets look to the future, after all, unlike most politicians. Someone pointed out that if world oil markets continue to work as they do today, OPEC could neutralize any potential price impact of offshore or ANWR oil production by reducing its oil exports by an equal amount. Sure, like that’s gonna happen.

Still, every little bit helps make us less dependent on those terrorist-loving Middle East nations, our politicians pronounce, proudly wearing their flag lapel pins, and ignoring the fact that we get over 50% of our imported oil from Canada and south of the border – holla! Cumulative oil production resulting from the opening of ANWR from 2018 through 2030 will produce a whopping 2.6 billion barrels of oil! That’s not chicken feed (chicken feed is what KFC workers are being paid). It is, however, just a little less than 3% of our current 8 billion barrels a year consumption. Gosh, that is a little bit. But it’s our little bit!

Well, I just got back from a vacation to Austria and need to post my photos. Boy, was it expensive over there. Hmm, I wonder if the declining value of the dollar has had any impact on the price of oil?

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