Oil be missing you...
Is it possible that we're genetically wired for puns? Everyone in my family seems to blurt plays on words at the slightest provocation, most of them not earning more than a groan and a riposte. Ok. So, I'm not apologizing for who I am.
I wanted to talk about oil. Seems like most of my adult life, at least since the oil scare of the 70s, many people have cried 'wolf' and articulated doomsday scenarios rooted in the impending decline of available oil and our increasing dependence on it. Of course, the subsequent thirty years didn't see any of those doomsday scenarios and the average joe tended, I think, to scoff.
So here we are in the middle of 2005 and oil and its availability once more has become a hotter issue. Gas prices are double what they were two years ago (if my memory serves me). And the raw price of oil itself is bouncing higher on international markets. Is this just another blip in the graph of our climb toward new economic heights? Or are there substantial reasons to think differently about what's happening right now?
I have to acknowledge that I'm not an oil expert, an industry analyst, a pundit, an economics wonk, or even a gas station attendant. All these classes of people are commonly consulted on this kind of question. Depending on who pays their salaries, they provide different answers to oil questions.
I'm just trying to be an honest observer of our circumstances. For starters, I know that the production of oil and the production of gasoline in the US are not directly connected. The primary limitation on the production of gasoline is the capacity of refineries here. Hasn't been a new one built in twenty years. The price of gasoline- getting it refined and delivered to the gas station-is going up in part because of that fact, but also because it's costing more to transport the gas.
My sense is that gas prices will not go down regardless of availability of oil because the law of "supply and demand" isn't going to operate. No one is going to build a gigantic new refinery complex on the theory that they can deliver more gas at a lower price and pick up a share of the market. The major oil companies who own the refinery capacity are all content to sit and collect the higher price and the cost of the infrastructure investment is too high for small vendors to horn in on the market.
So much for the 'free market economy'. (Now keep in mind, I'm not an expert so I may just be blowin' smoke.)
Regarding the separate and larger question of the world oil supply and its impact on us I think there is no argument that we have passed the point at which oil issues can be ignored. For starters, there is less new oil being discovered and there is more demand for the oil that exists. China and India, both with booming economies, are consuming oil at a faster pace as are we. As are other countries! There is not going to be a time in which American domestic oil production increases dramatically enough that we will reduce our 'dependence on foreign oil' that way. Just aint going to happen. If the way we run our economy continues to demand oil in the manner it has so far, we will be increasingly dependent on foreign oil.
That means we'll be competing with every other oil based economy for a smaller supply of the same stuff. I know that hundreds or thousands of people have proposed Halliburton or Bush cartel based theories about sinister plots and terrifying scenarios because of this truth. Let's step away from the speculative though. I'd like to assess whether there are any real observations that an ordinary, thinking person can make. Most of the oil out in the world is certainly distant from the US.
That means it's going to be increasingly expensive to transport. It also means that it is increasingly difficult for us to guarantee our access to it, should some other country want to get pushy. There's a military term called "force projection". Googling the phrase gives some idea of its relevance. If I understand it correctly, the term refers to the ability to mobilize, transport, and insert armed forces into a potential or actual theater of war. The US has spent years insuring that we have the ability to engage in force projection as needed. Whether it's oil or anything else at stake. All of this is complicated by limited access to oil supplies. Our navy is the world's only "all ocean" navy. And part of its strategic ability is that carrier fleets and submarines have nuclear powered abilities. The odds are we can always get a force into the theater. The question limited oil raises is whether we can sustain them there. Can we get high tech jet fuel? Can we get manufactured goods from factories dependent on oil? Can we transport goods or troops in oil based transport? All of this is a big issue, and one which, I am certain, our military is working long and hard to understand. However it plays out, oil is increasingly the critical substance in the equation.
On a less grand scale, what does the oil issue mean daily? If pesticides used in agriculture are petroleum based and if shipping lamb from New Zealand or lobsters from Maine requires petroleum based transport I would be surprised if we didn't see either less of such global trade for food commodities or much higher prices or both. What can you grow here at home to eat? That might be worth thinking about. On a daily basis, the cost of transporting other goods goes up with each hike in petroleum prices. Sea shipping, rail, and trucks are all consumers of oil. Including items like tires. Almost everything we consume is transported here. Cheap labor elsewhere has given us a cornucopia of material goods at low low prices. The increase in transport costs may jack those prices enough so that people pay a little more attention when they buy things. Not only that, but a consumer who was spending $80 a month on gas a year ago is now spending $ 160 to get to the same places. So the loss of $80 a month in discretionary income may make many people more price sensitive too.
Of course, we're mostly talking about people who are low or moderate income people. People whose per person household income is under $ 20,000 annually. (80K gross for a family of four) This group includes most everyone I know....
So. I think there are going to be changes. And the changes will affect those of us at the lower end of the spectrum.
More thoughts on this later.
I wanted to talk about oil. Seems like most of my adult life, at least since the oil scare of the 70s, many people have cried 'wolf' and articulated doomsday scenarios rooted in the impending decline of available oil and our increasing dependence on it. Of course, the subsequent thirty years didn't see any of those doomsday scenarios and the average joe tended, I think, to scoff.
So here we are in the middle of 2005 and oil and its availability once more has become a hotter issue. Gas prices are double what they were two years ago (if my memory serves me). And the raw price of oil itself is bouncing higher on international markets. Is this just another blip in the graph of our climb toward new economic heights? Or are there substantial reasons to think differently about what's happening right now?
I have to acknowledge that I'm not an oil expert, an industry analyst, a pundit, an economics wonk, or even a gas station attendant. All these classes of people are commonly consulted on this kind of question. Depending on who pays their salaries, they provide different answers to oil questions.
I'm just trying to be an honest observer of our circumstances. For starters, I know that the production of oil and the production of gasoline in the US are not directly connected. The primary limitation on the production of gasoline is the capacity of refineries here. Hasn't been a new one built in twenty years. The price of gasoline- getting it refined and delivered to the gas station-is going up in part because of that fact, but also because it's costing more to transport the gas.
My sense is that gas prices will not go down regardless of availability of oil because the law of "supply and demand" isn't going to operate. No one is going to build a gigantic new refinery complex on the theory that they can deliver more gas at a lower price and pick up a share of the market. The major oil companies who own the refinery capacity are all content to sit and collect the higher price and the cost of the infrastructure investment is too high for small vendors to horn in on the market.
So much for the 'free market economy'. (Now keep in mind, I'm not an expert so I may just be blowin' smoke.)
Regarding the separate and larger question of the world oil supply and its impact on us I think there is no argument that we have passed the point at which oil issues can be ignored. For starters, there is less new oil being discovered and there is more demand for the oil that exists. China and India, both with booming economies, are consuming oil at a faster pace as are we. As are other countries! There is not going to be a time in which American domestic oil production increases dramatically enough that we will reduce our 'dependence on foreign oil' that way. Just aint going to happen. If the way we run our economy continues to demand oil in the manner it has so far, we will be increasingly dependent on foreign oil.
That means we'll be competing with every other oil based economy for a smaller supply of the same stuff. I know that hundreds or thousands of people have proposed Halliburton or Bush cartel based theories about sinister plots and terrifying scenarios because of this truth. Let's step away from the speculative though. I'd like to assess whether there are any real observations that an ordinary, thinking person can make. Most of the oil out in the world is certainly distant from the US.
That means it's going to be increasingly expensive to transport. It also means that it is increasingly difficult for us to guarantee our access to it, should some other country want to get pushy. There's a military term called "force projection". Googling the phrase gives some idea of its relevance. If I understand it correctly, the term refers to the ability to mobilize, transport, and insert armed forces into a potential or actual theater of war. The US has spent years insuring that we have the ability to engage in force projection as needed. Whether it's oil or anything else at stake. All of this is complicated by limited access to oil supplies. Our navy is the world's only "all ocean" navy. And part of its strategic ability is that carrier fleets and submarines have nuclear powered abilities. The odds are we can always get a force into the theater. The question limited oil raises is whether we can sustain them there. Can we get high tech jet fuel? Can we get manufactured goods from factories dependent on oil? Can we transport goods or troops in oil based transport? All of this is a big issue, and one which, I am certain, our military is working long and hard to understand. However it plays out, oil is increasingly the critical substance in the equation.
On a less grand scale, what does the oil issue mean daily? If pesticides used in agriculture are petroleum based and if shipping lamb from New Zealand or lobsters from Maine requires petroleum based transport I would be surprised if we didn't see either less of such global trade for food commodities or much higher prices or both. What can you grow here at home to eat? That might be worth thinking about. On a daily basis, the cost of transporting other goods goes up with each hike in petroleum prices. Sea shipping, rail, and trucks are all consumers of oil. Including items like tires. Almost everything we consume is transported here. Cheap labor elsewhere has given us a cornucopia of material goods at low low prices. The increase in transport costs may jack those prices enough so that people pay a little more attention when they buy things. Not only that, but a consumer who was spending $80 a month on gas a year ago is now spending $ 160 to get to the same places. So the loss of $80 a month in discretionary income may make many people more price sensitive too.
Of course, we're mostly talking about people who are low or moderate income people. People whose per person household income is under $ 20,000 annually. (80K gross for a family of four) This group includes most everyone I know....
So. I think there are going to be changes. And the changes will affect those of us at the lower end of the spectrum.
More thoughts on this later.
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