Gouging At The Pump
(Part 1 of 2)

What is it with the oil industry these days? The latest meeting of the OPEC cartel in Vienna had them agreeing to boost oil output by 800,000 barrels a day to lower the price for a barrel of crude oil. This action usually happens when the threshold of $28 a barrel is met or crossed. The price is now at $32, and that is after the drop in price that reflected this announcement.

Another reason this is being done is to keep a good chunk of the world from being hung out to dry this winter should there be a cold snap like is often found in the northeastern United States and Canada. In many of these areas, heating oil is widely used in keeping homes and farms warm, and the costs to consumers could go through the roof, thereby putting some of our lower-income people at unnecessary risk.

I was in New York last week and saw a gallon of unleaded gasoline advertised at $1.50 per gallon. This was based on the price of oil being $35 a barrel. I remember back to my days as an undergraduate (1982) and living out West when oil was $55 a barrel and I was paying $1.36 a gallon for unleaded. What is wrong with this picture? Can you say price fixing? Gouging? I knew you could. In Canada, the situation is even worse. In the Toronto area, a U.S. gallon (remember, it’s smaller than the Imperial gallon) costs US$2.05 – this based on the Canadian price of 77.5 cents per liter and after the currency exchange factor has been figured into the equation.

Part of the current problem with the price of fuel being so high is that both Canada and the United States have not fully explored their offshore possibilities for deposits off the coast. A significant finding of oil in territorial waters could be a quantum leap in reducing our dependence on foreign oil. In addition, getting the non-OPEC oil producing nations to ease up and undercut OPEC may be just the ticket to get some real competition back into the marketplace.

What has kept both countries from exploring their offshore possibilities are extremists within the environmental lobby. These modern-day Chicken Littles keep proclaiming that ‘the sky is falling’, and governments are too quick to bow in fear and allow themselves to be intimidated by these well meaning but misguided folks. There are adequate safeguards that can be set in place that will allow for the drilling for oil, yet respect the wildlife in the surrounding area. With the advancement of safety technology on modern oilrigs, the chances of an oil spill are smaller than they have ever been. In fact, the chances of a spill on an offshore rig are no greater and probably less than that of a cargo ship carrying oil into or out of the harbor at New Orleans, Houston or any other major port.

The high prices of oil in 1982 made for some very fuel-efficient cars that year. I remember a college classmate who is one of my best friends. I went with him, his sister and his father to a Datsun (now Nissan) dealership in Bountiful to buy a new car with him, the Datsun 210 MPG model. After some negotiating in which the salesman had his back to me, and my friend and I were sending signals back and forth, he bought the car once the price was low enough. On Saturdays, he and I, along with his brothers on occasion, would travel to different areas of the state. The car was a 5-speed, got over 50 miles to the gallon on the highway and it was quite fun to drive. I know for a fact that he put a LOT of mileage on that car until he sold it to his younger brother three years later when he bought a newer car.

In 1986, the bottom fell out of the oil market and the price of gasoline went down to as low as 52.9 cents a gallon in St. Louis. The American people went out and bought cars that weren’t nearly as fuel-efficient. The incentive to overcome dependence on foreign sources for oil had all but disappeared, and we have since found ourselves beholden to the mercy of other nations of the world. This is not right.

The global thirst for oil has tripled the price for a barrel of oil within the past two years. I have seen the price of gasoline go from 94 cents to $1.50 a gallon in New York – at the same gas station. We, as a people, need to make do on less fuel. In my case, I eliminate all but necessary trips and combine the ones I do make. In doing so, I can make a 16-gallon tank of gas last just about a month. Sometimes, I have to make an extended trip, and the high price of fuel puts a strain on my budget, but I manage.

The ironic thing about the current production quota that OPEC has in place has just about all OPEC countries with the exception of Saudi Arabia pumping at full capacity. It’s my guess that OPEC is trying to ride the gravy train for as long as they are able. From a business standpoint, I can’t really blame them – after all, they have known some hard times, even if the average Joe has a hard time sympathizing with them. Even though I have a hard time feeling sorry for them, they are businessmen, they have a product and this is a free market economy. People will pay for what they have, especially if it is something they really need.

The kick of it all is that were these sheiks and oil ministers within the reach of U.S. law, they would in all likelihood, be doing extended time in Club Fed. Their pricing and business practices are predatory and make the alleged complaints by the Justice Department against Microsoft look tame by comparison – but that’s another column for another time.

If there is any hope to further reduce the dominance of OPEC on the rest of the world, it will come form the oil producers that are not members of OPEC – such as Mexico, Russia, Norway. It would be in the best interests of the United States as well as Canada to turn to these countries in an effort to reduce dependence on OPEC for oil.

While Norway may be a developed country, Mexico and Russia on the other hand, need A LOT of work to bring each of them to the level of being a modern, industrialized nation. The United States and Canada can help bring this about with trade credits and other assistance, thus raising the standard of living for the people of both nations. Mexico and Russia need the help, and with the United States and Canada scratching their back to that end, wonderful things can and will happen.

Perhaps then we can show the OPEC cartel that they are not as powerful as they like to think of themselves as being

You can e-mail your comments to Timothy at trollins@idirect.com.

Copyright © 2000 by Timothy Rollins.
All Rights Reserved.

-Published with permission