Wednesday, May 19, 2004

Fueling the Debate

People are having such a hard time understanding why fuel prices are so high (technically incorrect, but save that for another article).

I have heard a myraid of reasons, here are a few of the most popular on the Left:

Bush and his Saudi buddies are jacking up the prices to make money.
Bush pissed off the Arab street and they are punishing us with high prices
The oil companies (bad CEOs!) are jacking up the prices and gouging the little people.

Well consider this:


Oil Production has limits. There might be boundless barrels of oil in the deserts (not really true) and tundras around the world, but the capacity to pump it out, refine it, ship it and store it has limits.

OPEC, which supplies roughly 30-32% of our oil is made up of the following nations: Algeria,Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates,Venezuela. The rest comes from Canada, Mexico and much smaller capacity markets.


Demand worldwide is up considerably. Demand in the US has risen 15% in the past ten years. But consider China, which has doubled it's demand for oil in the past 10 years, as it indutrializes. When you have a limited quantity of something and more people want more of it, the price goes up. Some of you beanie baby collectors ought to be able to understand this one.

Good News

OPEC will consider increasing production by 15% in order to curb the cost of fuel worldwide. It should be noted, the proposal came from Saudi Arabia and Saudi Arabia is the only OPEC nation with the capability to significantly increase oil production.

Bad News
We don't have the refinery capacity to make more crude oil into usable fuel. We have not built a new refinery in the US in nearly 30 years, and overall capacity upgrades have only created an 8% increase in capacity.

Our high fuel prices are a result of a simple economic law - supply and demand, coupled with the fact that we have done nothing to secure our own sources of oil or reasonably priced alternative fuels. People scream about relying on OPEC oil, but fight against nuclear energy. People scream about OPEC oil, but don't want to secure more domestic sources. People scream about relying on OPEC oil, but propose alternative energy sources, which would be far more costly to the consumer than oil. People scream about relying on OPEC oil, but drive ten blocks to work. These same people will pay $1.29 for 32oz of soda and $3.00 for 2 liters of water without complaint.


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