By Alan Caruba
“Why Oil is Rising” was the headline on the November 8th article in the business section of my local, daily newspaper. First of all, the headline makes no sense. It should, of course, ask why the price of oil (per barrel) is rising and, subsequently, take note of the fact that everything that is made from oil—think plastics—is going to rise in cost.
Now, one should have a reasonable expectation that a “business news reporter” should have some fundamental understanding of business trends, economics, the stock market, commodities, and comparable topics.
So, when a reporter, addressing why the cost of oil has risen, begins his article saying, “Blame it on the weak dollar and the world’s insatiable demand for oil,” my first reaction is that he’s a dope. It got worse. In a sidebar listing the “winners and losers”, at the top of the list of winners was “oil companies that continue to rake in profits.”
Whoa! Does this guy even read newspapers? We have a weak dollar, not because of energy use, but because of a surfeit of bad housing mortgage loans, plus a deficit that keeps rising, thanks to the insane spending spree that Congress, under both Democrats and Republicans, continues to pursue.
The fact is that oil companies are all reporting decreasing profits. As Michael J. Economides, the editor-in-chief of the Energy Tribune, points out, “On November 1, the US largest public company and the world’s largest oil company reported a ‘steep’ 10 percent decline in its profit to below a market expectation level of $9.41 billion!”
Economides points out that the real reason why the price per barrel of oil is high is because of “geopolitical headlines” resulting from the threats issued by people running oil-producing nations like Hugo Chavez in Venezuela, the Iranian mullahs, and Russia’s Vladimir Putin. Add in a lot of trouble on the ground in oil-rich nations like Iraq and Nigeria, plus the fact that the United States has pursued a policy since the 1970s of restricting exploration and extraction of our own national oil resources, and you have high prices.
The cost of gasoline is further impacted by the obstacles that have thwarted oil companies in the U.S. from building more refineries. Not one new one has been built since the 1970s. Fully 85% of the continental shelf off the East and West Coast of America is off-limits to any exploration and, of course, the billions of barrels of oil in ANWR cannot be accessed thanks to a refusal by Congress to permit it.
And then we have all those idiot politicians running around saying the United States has to become more “energy independent” or the President claiming we are “addicted to oil.” No, we are not addicted. We require and need an energy source critical to the function of our society and economy. Other nations need oil, too. It’s called supply and demand!
As for those evil oil companies, Richard W. Rahn, a senior fellow of the Discovery Institute and adjunct scholar of the Cato Institute, points out that “Exxon Mobil, the world’s largest privately owned oil company, owns only 1.08 percent of the world’s oil reserves, and the five largest private global oil companies together own only about 4 percent of the world’s oil reserves.”
“If there were a truly free market in oil,” said Rahn, “with both the reserves and production owned and controlled by many competitive companies, the price of oil would be a fraction of today’s price.”
That’s not happening. Venezuela nationalized its oil company. Mexico has always had a national oil company. Russia’s is a state-run company. The Saudis and Gulf states are all government-run operations.
We don’t need dopey news blaming the oil companies and claiming they are making big profits when they are not. We need news that informs people of the need to begin to find and extract the oil we have and stop pushing inefficient and costly “alternative” energy like wind and solar power. We need to end the government-mandated inclusion of ethanol in gasoline. We need to stop punishing Americans for getting in their cars and driving to work or anywhere else.
Mostly we are in need of accurate reporting on energy issues and I don’t hold out a whole lot of hope of that from the same people who keep telling us the earth is heating up and we’re all going to die unless we return to a golden transportation age of horses.