The gangs all here. OPEC (Organization
of Petroleum Exporting Countries) that is. Like a petulant
child, they are annoyed by the 24% recent drop in the price
of oil from $78 a barrel to $59 a barrel. As a result, they
are considering calling an emergency meeting to cut oil production
in order to force prices back up to $70 or more a barrel.
The last time OPEC threw a tantrum was in 1973; it caused
long lines at the gas station and a recession. This is not
a true oil market where prices are determined by supply and
demand. OPEC is a cartel that controls the price of oil. Nine
of every ten barrels of crude reserves are in the hands of
state-owned or state-controlled companies. OPEC currently
controls about a third of global output, but non-OPEC oil
is growing steadily. Recently huge oil reserves were discovered
in the Gulf of Mexico, and Mexico itself has large amounts
of untapped oil reserves. Oil shale is another source of oil
and is found in large quantities in Canada and even here in
America.
In a recent interview Paolo Scaroni the Chief Executive
of Eni of Italy, one of the world’s top oil companies,
expressed his opinion that $60 for a barrel of oil was not
very high. His reasoning was that the American consumer burns
twenty-six barrels of oil per year compared with twelve barrels
for Europeans. He says that it has been clear to everyone
that the Western world can live with $70 a barrel for oil
and more as economies continue to expand and inflation remains
low. He believes that the American economy is wasteful in
its energy use (he is probably correct). He further states
that if American cars had the same efficiency as European
cars, we would save the total production of Iran or four million
barrels a day.
Hugo Chavez of course is doing his best to roil the oil
market by nationalizing the oil companies in Venezuela and
forcing foreign oil companies to accept less lucrative contacts
for future oil rights. Venezuela is the fifth largest foreign
source of oil for the US. Venezuelan oil exports to the US
dropped 6% in the first half of this year to about 1.3 million
barrels per day. Recently the 7-Eleven stores in the US stopped
buying oil from Citgo which is wholly owned by Venezuelan
government, and we can probably expect further backlash from
Chavez. He is certainly not our friend, and we will eventually
wean ourselves off his oil. He is in political trouble at
home so the playing field could change at any time.
The negative aspect of finding new oil reserves is that
it will delay the research for alternative sources of energy.
Fossil fuels are going the way of the dinosaur, and the sooner
we find new sources of energy the better. The big losers will
be OPEC as they will gradually lose their leverage over us.
Here’s an idea that has been floated before and is
getting attention again – raise the tax on gasoline.
The average tax on gasoline per gallon in the US is $0.40
and that includes state and federal taxes. In contrast, gasoline
taxes are $4.24 in Britain, $3.80 in France, $2.07 in Japan
and $1.03 in Canada. At a business meeting in late September,
Alan Greenspan was asked if he would like to see an increase
in the federal gasoline tax which has stood at 18.4 cents
a gallon since 1993. “Yes, I would,” Greenspan
responded. “That’s the way to get consumption
down. It’s a national security issue.” It’s
not likely you will hear too much about this in an election
year or even before the 2008 presidential election. This is
a button hotter than Social Security reform, and it would
be hard to get Americans behind it no matter how practical
it might be.
Bureaucratic Waste Dept: In New York City officials want
to ban the use of all trans fats in restaurants. How many
trans fat policemen will be required to monitor that? In California,
Attorney General Bill Lockyer has sued the six largest automakers
in the US for making vehicles that contribute to global warming.
Lockyer says that the auto companies have created a “public
nuisance” by making millions of vehicles that emit huge
quantities of carbon dioxide, a greenhouse gas that contributes
to global warming. Imagine the cost to taxpayers to pursue
this wasteful lawsuit. Further, imagine the world’s
largest economy functioning without cars and trucks. Next
will be a lawsuit against dairy and cattle farmers for raising
flatulent cattle herds that yearly emit tons of methane, another
greenhouse gas.
Random thought for October 2006:
The cruise liner, QE2, moves only six inches for each gallon
of diesel that it burns.
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