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With gas prices at record highs, I'm sure you've got a few choice words to say about the greedy you-know-whats who run the big oil companies.
But I've got an alternative solution, and I don't mean ethanol: Don't get mad. Get even.
There's no point in getting mad at the oil companies, despite their record profits. They aren't gouging you, and the higher prices aren't their fault.
The blames lies a lot farther upstream. It lies with Congress. It lies with corn farmers. It lies with the Chinese. It lies in Europe. And, I'm sorry to say, it mostly lies with you.
Unless you are a vegetarian city dweller who walks to work, has never let a plastic fork touch your lips and has never bought a cheap Asian-made cell phone, then you need to shoulder some of the responsibility for our consumerist culture's absolutely extraordinary demand for crude oil and its refined byproducts.
Forget the guilt, though, and focus on the solution. There's a way to make rising gas prices work for you. And it's a simple matter of choosing the right ally, which might well be an entity you currently consider the enemy: ExxonMobil (XOM, news, msgs).
The crude truth
Impossible? Well, hear me out before you click away from this column. Because despite what you may have heard, there really is a shortage of refined oil products in the world marketplace today, and we are never, ever going back to the good old days of absolute abundance when we didn't need to share. Nor should we.Higher prices at the pump today are a matter of simple economics. U.S. refiners have the ability to churn out 17 million barrels of gasoline per day. Demand is around 22 million barrels per day. To make up the difference, we bring in gasoline from foreign refiners, which means that, at the margins, pump prices are set by import prices.
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Total U.S. demand for oil products is up 2.7% year to date, boosted in part by the surge in cold weather in February. But since we are far from the only country importing gasoline and other key refined products, we don't have a lot of say in what those prices are.
Gasoline, like crude oil, is auctioned worldwide to the highest bidder, and with the dollar weak and overseas economic growth strong because of our fantastic appetite for iPods made in China and T-shirts made in Costa Rica, we have to pay up to keep our supply coming in. And that's all there is to it.
With U.S. refinery capacity now at ridiculously low levels due in part to lack of investment in new plants amid harsh environmental rules, any little change in the supply chain has an amazingly powerful effect.
If there's a blip in supply from Nigeria, where violence is raging, or there's a refinery accident that causes a kink in capacity, the amount of gasoline and diesel available for American consumers shrinks dramatically. Price then becomes the great allocator of this scarce resource. Right now, U.S. gasoline inventory is at a record low, with just 20 days' supply available.
If there's one thing you can pin on the oil companies, it's that during their long trek in the wilderness in the 1980s and 1990s, when prices fell dramatically, they failed to maintain their refineries adequately. This shortfall in investment led in part to the tragic 2005 explosion at the Texas City refinery of BP PLC (BP, news, msgs), which killed 15 people, as well as the recent fire at the McKee refinery operated by Valero Energy (VLO, news, msgs). Combine the poor maintenance with a stunning lack of qualified refinery engineers and some bad luck, and you've got the current mess, in which several of the nation's biggest refineries are running at half-speed. As much as 500,000 barrels per day of gasoline capacity is unavailable.
'Methadone' in the tank
The government, meanwhile, has not exactly covered itself in glory. For a variety of good reasons, for example, new federal rules have made a type of fuel used by farmers called ultralow sulfur diesel difficult to transport nationwide in conventional pipelines. So farmers have had to turn to more expensive grades of diesel refined and sold locally, while the cheaper diesel has been sent overseas where transportation rules are less stringent.Rate this Article
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