RISING OIL PRICES, REPUBLICANS TRY TO BLAME OBAMA

RISING OIL PRICES:REPUBLICANS TRY TO BLAME OBAMA

The Republicans, sensing a possible victory in the upcoming 2014 elections have been floundering around for an electioneering focus and talking point. It seems anything will do whether true or false. First, they tried to pull themselves up in the polls using the economy, but that rope frayed when, thanks to some modest Keynesian policies employed by this present administration the economy appears to be (by fits and starts) reviving. They shifted gears to social-wedge issues, such as abortion and women's personal health and family planning like contraception--which has underscored their reputations as the anti-female-party. This has proved a political failure and a definite "no no". So most recently at a time when gas prices have spiked, they have now taken up the oil cudgel.

Oil prices have risen sharply in recent months. The Republicans are trying to pin this on Mr. Obama. But there are three main causes for rising oil prices. None of them are related directly back to Mr Obama. They are basically these: first, our own traditional wasteful use of oil, second, the fact that the resource is a non-renewable finite quantity and world production has passed into a post "peak oil" period, and in this situation when demand for oil from China and other developing nations has grown exponentially, which leaves the USA and other older industrialized nations all competing for the same limited resource.

The USA is a former major oil producer, but those "oily days" are gone now. Today we hold only about 3% of the world's reserves. Our glory days are over but our old use-habits die hard. Oil was first commercially exploited here in the US in the 19th century in Pennsylvania. We grew up as a nation on cheap oil. Since we produced our own, the commodity remained inexpensive for us through the first half of the the last century. (It is still cheap here in the US. But at nearly four dollars a gallon, we complain, but in the UK, motorists are currently paying the equivalent of ten dollars a gallon!) With good quality, cheap oil in our backyard we simply became inured to low prices for energy and fell into practices which encouraged wasting oil. We developed our concepts, policies, and practices in a nation where energy was cheap. We built and drove big inefficient cars, and designed and produced houses which wasted fuel oil. We scattered our homes over the countryside so that to knit them together we had to build an extensive road system upon which we used oil powered buses and autos. At the behest of the powerful oil interests we undermined and made obsolete our efficient rail system for hauling freight and turned to trucks for haulage. We developed agribusinesses dependent upon cheap oil. It focused on using petroleum-based fertilizers and pesticides which were once cheap but as oil prices climb have become increasing,y expensive. We sites farms wily nilly and most often at great distances from major population centers so that today with packaging, transport costs, refrigeration etc. each calorie of heat energy derived from the food we eat takes seven calories of heat energy from oil.

We are profligate waster of oil. The US has only between two or three percent of the world's reserves yet uses nearly 20 % of the world's oil production. Today, we remain the world's greatest consumer of oil. We burn more than the sum of the oil consumed by the next five top oil importing countries. Yes add up China, Japan, India, Russia and Germany's oil consumption and that is what we use daily. We consume just about 19 million barrels of oil each day. Were we to put that amount in standard oil barrels and line them up over the earth's surface, the line of barrels would stretch from the North Pole to the southern tip of South America just south of Tierra Del Fuego! That's how much we use each day! China which has a robust economy which is considered a challenge to our own, yet it uses less than half the oil we use. It also has a population of more than four times our own at 1.3 billion, but a billion-plus Chinese use less than half of the oil we use each year. There must be enormous waste in our pattern of usage. So when oil prices climb, we are like a motorist rolling in to an isolated, windswept and desolate Mojave-desert gas station with our gas needle buried at the "E"----we need that gas to get to LA and will pay any price for it.

Oil production worldwide is past its peak. According to some predictions the maximum rate of global extraction was reached in 2000. Here in the US we reached "peak oil" in 1975 and since then our production has been in terminal decline. There are no new lands or new fields which remain undiscovered new sources which will change the overall picture. Now, what is left is the known or "proven" resources in Russia, Saudi Arabia, the Middle East and Africa. These are being exploited fully and will continue to produce oil at a steady but slowly declining rate of some 50-80 million barrels a day for some time to come.

Due to natural development, population growth, and world industrialization, since the 1980s oil demand has crept up from 59 million barrels per day (1980) usage to about 89 million barrels a day in 2009. That amount is close to what the world uses each day, i.e. somewhere between 59 million barrels to 89 million barrels. The amount varies with the world economy and related world demand. So we are in a roughly stable position. Some of those sources such as as Libya are off production right now because of the recent revolution there. Iran's oil may soon be unavailable to the west or taken off the market due to the smoldering Israeli-Iranian conflict. Saudi Arabia has promised to pump more oil to make up the difference but it is only interested in producing enough to satisfy basic needs. Its policy is naturally to keep production low enough and oil prices high for the product it is selling. Therefore all the consumers are competing for the same pool of available oil and that hi demand is what keeps the price high.

Since there are no major new sources of this finite commodity the amount which reaches the market is relatively constant. World demand for oil has risen in concert with industrialization and mechanization. Another factor keeping prices high is that because producer nations wish to maintain a higher price for their product they tend to decrease production when demand slows and increase it a bit when demand spikes. So demand nearly always exceeds supply and so high prices will not ever go back to the cheap range. Right now with a barrel of oil at $126.00 dollars "extreme" sources of oil such as those from very deep ocean water, or Arctic areas--all difficult and expensive places from which to extract and transport oil from-can now come on to the market at competitive prices. For example, the oil sludge from the Athabaskan tar sands costs much more than sweet crude to extract, to process and to transport (and to clean up when it spills). It is too expensive to compete with normal crude. But when prices spike up to over $70 dollars per barrel, it becomes a salable commodity.

So it is the fact that oil is a commodity of diminishing production, our profligate and wasteful use of that commodity, as well as the fact that we grew as a world power nation with cheap oil and continue to think of it as our nation's "birthright" to have cheap oil, as well as our failure to foresee this clearly predictable situation and plan for it in the 1960s (mostly because as now, our government was in too cozy a relationship with the oil companies), and finally, the growth of the economies of other nations which now compete with us for a now increasingly scarce product. So don't blame Obama for that!

Get the picture?

Rjk