Why gas prices are rising

In April of last year, Rep. Nancy Pelosi, D-Calif., was asked why gas prices were surging ever closer to $3 per gallon. She told CNN: “We have two oilmen in the White House … The logical follow-up from that is $3-a-gallon gasoline. It is no accident. It is a cause and effect.”

How prescient was her thinking? I’d pick prescient over predictable. Not that the war between congressional Democrats and Bush Republicans over the price of oil is anything new. It’s been going on since President Bush took office. But as oil nears $100 per barrel, as gas exceeds $3 per gallon nationally and as heating oil and natural gas spiral skyward in anticipation of winter, debate is brewing once again over who is at fault.

A smidgen of history is necessary here. Crude was trading at about $25 per barrel the year that George W. Bush was inaugurated.

Within a year, the price actually tumbled to around $17 per barrel. It has done little but climb, climb, climb ever since. The $100 barrel of oil is no longer unimaginable, it’s coming and soon. How much of that is the Bush administration’s fault?

Quite a bit if you listen to Congressional Democrats, none at all if you’re in the Republican camp. Most recently, seven Democratic senators sent a letter to Energy Secretary Samuel Bodman “respectfully requesting” that the administration “immediately” postpone further deliveries to the nation’s Strategic Petroleum Reserve. The Reserve is the world’s largest emergency petroleum store maintained by any government and can hold some 727 million barrels of crude at a time. According to the Department of Energy’s own Web site, the Reserve was quite close to capacity at the end of October, capturing 694 million barrels of crude.

Conventional wisdom holds that the government should only go into competition against private traders when markets are sanguine and prices are low. According to a Senate source, Democratic senators are stupefied as to why the administration would be stockpiling oil at a time of record prices and jittery markets. They are not alone. Business media reports quote oil analysts as saying the move makes no sense and seems perfectly timed to drive up the price of oil and further destabilize oil markets.

In response, the White House expressed “dismay” over high oil prices, watching those prices rally more than 15 percent between Oct. 8 and Oct. 19, “driven by fears about tight winter supply and a weakening U.S. dollar, which has propped up prices for oil and other commodities like gold,” according to Reuters news service (http://www.reuters.com/article/businessNews/idUSN1929571620071019.)

This brings us to the second of two Bush administration tactics that critics claim have worked to bolster oil prices. The first is incredibly bad timing for Strategic Petroleum Reserve purchases. The second is the weakened U.S. dollar, squandered into near-oblivion by seven years of uncontrolled, exhaustive spending habits, driving its value further and further down on international exchanges.

It is not often mentioned in the media but a major fear of oil-industry experts that the dollar’s weakness will soon drive Middle Eastern oil markets to start trading oil in euros rather than in dollars. If $100 per barrel looks high now, it will look cheap after markets shift to petro-euros. To these two factors I would add a third: saber-rattling.

Invading Iraq was supposed, in part, to guarantee the United States a reliable (implication, cheap) supply of oil. It and threats whether implicit or explicit against other nations by the Bush administration has done exactly the opposite. It has rattled the markets and made oil more expensive.

Both parties know better than to discuss the possibility of price controls, which failed miserably in 1973-74. But if Democrats controlled the White House or possessed a veto-proof majority in Congress, one has to wonder whether oil companies and oil markets would be acting differently.

(Bonnie Erbe is a TV host and columnist. E-mail bonnieerbe(at)CompuServe.com.)


  1. Steve Horn

    Do Ms. Pelousy I’d like to say “no shit Sherlock” – she just came to that conclusion? That in and of itself speaks volumes to the disconnect between our “representatives” and the population at large.

    Gee – do you REALLY think that having oil men in control would drive prices up to fatten their own and their buddies bank accounts? Really? Wow – what a concept. Next thing you know they’ll figure out that people use more heating oil in the winter ’cause that’s when they need to heat their homes!

    Wow – just another example of rational, analytic forward thinking on the part of our government ….

    And then to grip the clear fact that invading Iraq caused a lack of stability in the Middle East (which was quite unstable BEFORE the innvasion) – man howdy – who woulda thunk it?

    The clear and quick thinking on the part of the congressional leadership never ceases to astonish me – how CAN they be so bright?



  2. Electric Bill

    “But if Democrats controlled the White House or possessed a veto-proof majority in Congress, one has to wonder whether oil companies and oil markets would be acting differently.”

    How nice it will be to find out, providing the Democrats don’t convene any circular firing squads between now and the elections. The administration has been able to influence oil prices several ways, but their incessant saber rattling and playing the fear card at home and abroad seems to work every time the price starts getting back to a reasonable level. They have also worked hard to lower the value of the dollar to help their friends in the export oriented industries, the effect on the people be damned.

  3. Steve Horn

    But Bill – the stock market is up so the economic condition of the country MUST be good, right?
    I mean we need not look at the quality of jobs created, just the quantity, correct? The fact that Chrysler is planning to lay off 12,000 people who were making a good wage doesn’t matter if they can get minimum wage jobs at sprawlmart selling cheap, toxic junk to Americans, right?
    And who needs health care for kids when, if they’re kept poor enough the only option they will have is enlisting in the military to be sacrificed for the war on “terrorisim” – after all – they’d better be prepared for substandard medical care – that’s what they’ll receive through the VA after they’ve been wounded in the fight – and if they die the nuts from a Baptist church in Kansas will be able to protest their funerals – ’cause they’re being killed because our nation accepts homosexuals (icky, icky, icky!) –
    Fuck the average guy – so long as the rich can accumulate more power and wealth – that’s all that matters in America, version 2.0.


  4. yarply

    Oil prices are only high in US dollars.
    Oil prices in Europe and other countries are stable. Why? Because in the last six years the US dollars value has depreciated about 60%.
    This country has a supposed 10 TRILLION dollar debt. Yet some (Rep. Jim Cooper) say that the actual US debt is about 49 trillion.
    Also the comptroller general David Walker paints a horrendous picture of the fate of this country.
    The dollar isn’t worth the paper (or the cotton and linen rag paper) it is written on. People say oil prices could go over 100 dollars a barrel? Try 200 dollars or more.
    Some people even say the dollar will have to be junked and a new currency devised to fix the debt, but the US would have to totally fail economically for this to occur.

    Global block currency?
    One world currency anyone?

    Get ready for the country to die.
    But what will rise from the ashes?

  5. Cailleach

    Gas will reach $3.00 a gallon? Well, folks, in Taos, NM the cheap stuff is 3.19.9 per gallon-read $3.20. I just spoke to a woman who is here for a few months from Venezuela. She fills up her SUV for $2.00 there. Not $2 a gallon, $2 a fill-up. Bad for global warming, but awfully good for your budget. Oh yes, our gas prices here in Taos change, on average, once a month.

  6. SEAL

    Like most americans I never paid much attention to the medicare costs of this nation until I contracted a terminal illness. A long slow death covering many years with increasing medical costs each year. I don’t get to see all of my medical payments made by medicare, only what they routinely send me copies of. I have never requested the others, I suppose, because I don’t want to know how bad it is. I have a fair idea, however.

    The best guestimate I can make is that medicare is spending very close to $500,000 a year for me. Yeah, that is an enornous amount for one person. But In spending an average of 3 days a week at the Moffitt Cancer Center I see hundreds of people 65 or older there every single day. Taking my figures as the cost for each person the amout is staggering to contemplate. And this is only one such facility in the country.

    What I must wonder is why the treatment costs are so high. For example, my medication cost alone averages $15,000 per month just for a few bottles of pills that I know only cost a few cents to produce. One set of radiation treatments, 14 shots, is $20,000. Sure the machine is expensive but the treatment takes only 15 minutes, that’s 3-4 per hour. I once had a set of 42 of those and never saw the bill. Any trip I make to the center is $500 minimum just for being there. X-Rays are $300-$900 a 20 minute set and I have had several 30-45 minute MRIs at several thousand dollars each. Why do these things cost so damn much even at the reduced amounts medicare pays?

    No one could appreciate the quality of my care more than I but the cancer center and the drug companies are making an enormous profit from my care. They provide valet parking. The amenities are first class from stem to stern. Big screen Plasma TVs in every waiting area. Staff is more than adequate to make you comfortable and entertained or transported around the center. All this extra expense is unnecessary. And the taxpayer is footing the bill.

    I guess my point is that the real culprit, from my experience, is the cost of the medical care, not the number of patients on medicare.