Here We Go Again …
It certainly doesn’t feel like the recession is over, so why are gas prices going up?
Anyone who has filled up their car – or their truck or their fleet for that matter – in recent weeks – has been in for a bit of sticker shock. It’s not as bad as those crippling prices of last year, but at a time that we’re all trying to watch every penny, it’s a nuisance nonetheless. It’s also more than a little baffling: With costs of everything from houses to consumer goods to labor falling, why should gasoline be rising, even modestly?
Time Magazine recently offered a great primer on the matter, outlining all the factors besides plain old supply and demand that dictate crude oil prices, and explained why America’s dependence on oil produced in foreign countries makes us particularly vulnerable to unpredictable price shifts that are not always rooted in broader economic patterns. As Time explains, the rising prices of late fly in the face of not only extremely weak demand (the weakest since 1981), but strong supply as well. Storage tankers are so full that, the story reports, there is a serious risk of running out of storage space within a month.
But while the oil is there, the OPEC cartel is carefully controlling the amount of oil it releases onto the world market, partly in an effort to increase prices, and partly in anticipation of better economic times, and higher demand, on the horizon. Most economists expect the recession to officially end by the end of the year.
When Americans get frustrated with the cost of gas, it becomes very easy to cast OPEC as everything from mischievous to Machiavellian: some faceless entity taking a very personal pleasure in our pain at the pump. In reality, this cartel of 12 nations as diverse as Nigeria and Ecuador is more often motivated by their own domestic economies than an anti-western stance.
While certainly aware that their oil is their trump card on the world’s geopolitical scene, they’re also under pressure to generate funds for further oil development and other projects at home. And by attempting to control supply just enough to support prices, they’re also engaged in a high-stakes game, which if not calculated exactly right could have disastrous results.
OPEC miscalculated the impact of the Asian economic crisis in 1998, sending prices plummeting. If they are wrong this time about the end of the recession, or how strong the rise in demand will be when things do pick up, all that oil sitting in storage could again send prices into a nosedive.
A lot of this is just the reality of doing business in a complex global market, where American interests are not always front and center.
But it’s also a matter of degree. The U.S. does not have to adopt isolated, protectionist ways to understand that its greatest power rests in its own natural resources. And we should break the pattern of putting this conversation on hold until we feel the pain in our pocketbooks.
