The Jim of the United States

Big Oil

bigoil2I find myself defending the oil companies, or Big Oil as some claim, quite often. It was especially bad after the whipping hurricane Katrina put on New Orleans and the Gulf Coast region. And now, as tensions rise again in the Middle East and the price of oil is slowly creeping to triple digit prices, I once again find myself defending the oil companies.

It seems most people understand how Middle East political uncertainty and hurricanes can affect gasoline prices. However, it is always followed by this question “Isn’t it price-gouging for the oil companies to raise the price of all the gasoline already bought and stored before the crises?” While I am no economist, this statement is a clear example of the misunderstanding of how prices are determined. So gather round in a circle, and I’ll see if I can hammer this out for you. I’ll try to use an example even people in Rio Linda can understand.

Suppose you owned a small 100 gallon inventory of beer you purchased for $3.00 a gallon. Each week, after putting in many long hours of work, you sell me a gallon for $4.00. All of a sudden a drought in Germany destroyed half of its barley crop, causing the world price of beer to immediately rise to $6.00 per gallon. Now, you still have beer you purchased before the jump in prices. When I stop by to buy another gallon of beer, how much will you charge me? I’m guessing you will charge me at least $6.00 per gallon. Why you ask? Because that is today’s cost to replace your inventory of beer.

Historical costs do not determine prices; what economists call “opportunity” cost do (got my trusty college Econ book out for that). Now, of course, you would have every opportunity to not be an evil “price gouger” and continue to charge me $4.00 a gallon. I would then buy your entire inventory and turn around and sell it for today’s price of $6.00 per gallon and make a handsome profit.

If there is any reason in today’s rising gas prices it is the cowardice and stupidity of the US Congress. Opening a tiny portion of the Arctic National Wildlife Refuge (ANWR) to oil and gas production would increase our domestic oil reserves by 50%. This doesn’t even take in account the Pacific, Atlantic and the Gulf of Mexico offshore areas, which are rich in oil and natural gas.

A while back a good friend of mine, zulubuff, brought up some interesting points. Now is the time that a true leader, a true conservative, with the threat of rising oil and gas prices, to say enough is enough and take control of this energy crisis. If I were President, I would hold a press conference and outline my 5 point plan:

For immediate relief of rising gas prices, a suspension—and eventual elimination—of the Federal Gas tax. I would expect, nay, demand, the States and Counties to follow suit

  1. Drop EPA standards that are causing regionalization of gasoline formulation, which are the true cause of tight supplies
  2. Open up former military bases for the construction of refineries
  3. Relax Federal standards and push for the construction of refineries
  4. Open up our country to more domestic drilling

Now to Bush’s credit, he did relax some EPA standards back in 2005 after Katrina and in late 2005 he signed an Energy Bill, which helped push for more Nuclear plants. But because of costly regulations and political restrictions, US nuclear energy production is a fraction of what it could be. Nuclear power creates 75% of France’s electricity, nearly 50% of Sweden’s but only 20% of ours. To be the worlds leading Super Power, that doesn’t sound very super……or powerful……..or even a leader. Bottom line is nuclear energy is VERY safe.

Overall these are good points that could get passed with strong leadership. Unfortunately, Bush will never do it. For one, he has run out of time. In addition, the liberals and RINO’s (Republican in name only) will continue what they are doing—impeding progress.


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