BusinessWeek: "Why is Washington doing everything it can to convince us there is a gasoline shortage when there isn't one?"
- From: Florida <demeter547opine@xxxxxxxxx>
- Date: Mon, 7 Apr 2008 17:55:55 -0700 (PDT)
The last line of the piece sums up U.S. financial problems nicely:
"One would guess that Washington missed the obvious: Protect all U.S.
consumers and you're also protecting business expansion."
_________________
BusinessWeek
http://www.businessweek.com/print/lifestyle/content/apr2008/bw2008041_945564.htm
Viewpoint April 1, 2008, 3:41PM EST
There Is No Gas Shortage
But Washington, Wall Street, and ethanol and oil and gas companies
want you to think there is, says automotive expert Ed Wallace
by Ed Wallace
"They see speculation in the market, I see decline in global
inventories. I don't think this is a big surprise, that we've had a
jump in price when there has been a decrease in crude inventories."--
Energy Secretary Sam Bodman, Bloomberg News, Mar. 5, 2008
"It should be obvious to you all that the [gasoline] demand is
outstripping supply, which causes prices to go up." -- President George
W. Bush, Associated Press, Mar. 5, 2008
One wonders if verifiable facts ever get in the way of this
administration's statements on issues that are critical to the average
American's wellbeing. After all, last time I checked, when politicians
are elected to public office, or appointed, as is Energy Secretary
Samuel W. Bodman, they must take an oath to the American people before
assuming their new positions. How can they forget a sacred oath so
quickly? Were they daydreaming when they took it, so it never meant
anything to begin with? Maybe it's just another promise you have to
make to get into office: When you're securely incumbent you can ignore
even solemn oaths you took.
Obviously, the two quotes that led this article came from discussions
concerning the current high price for oil on the futures market.
Bodman appears to be protecting the speculators in oil, as opposed to
looking after the interests of all Americans. President Bush,
apparently, has never talked to the Energy Dept.'s Energy Information
Agency to see whether gasoline demand is actually up. More troubling,
the writer of that particular Associated Press article obviously
didn't look up the EIA's numbers to verify the President's assertions.
They weren't accurate.
1. There Is No Shortage
Gasoline reserves on hand are at the highest levels since the early
1990s, which is remarkable considering the nation's refineries have
been cutting back on the production of gasoline because their margins
have declined. In fact, average gasoline reserves on hand have risen
since this past October, while oil reserves in this country have gone
up virtually every week this year--and only fog in the Houston Ship
Channel that kept oil tankers from unloading their crude one week kept
it from being every week.
In the same Bloomberg article that quotes from Bodman's CNBC
appearance on Mar. 4, he also said that it was thanks to ethanol that
the gasoline problem isn't even worse. He then added that the fact
that making ethanol is forcing up prices of other farm commodities,
including hog and chicken feed, is "nowhere near as important as
trying to relieve pressure on [gasoline] supplies."
Of course, there is no pressure on gasoline supplies in this country
as of today, but Bodman's statement must have made eyes roll among the
executives at Pilgrim's Pride PPC; the Pittsburg, (Tex.) poultry
producer announced 1,100 layoffs on Mar. 13, closing one processing
plant and 6 of their 13 distribution centers because their company's
outlay for chicken feed went up $600 million last fiscal year and was
on track to increase by another $700 million this year.
Here's the scorecard, in case you missed it. There's no shortage of
gasoline or oil in the U.S. today, and we have near-record reserves on
hand. Meanwhile the Congressional mandate for ethanol has jacked up
the price of chicken feed for Pilgrim's Pride, which is the U.S.'s
largest processor of chickens and turkeys--by $1.3 billion. And that's
for just one company processing chicken. This is what passes for
acceptable to our Energy Secretary?
2. Demand Is DOWN, Yet Prices Are UP
Just so we can all get on the same page, here are the verifiable facts
on oil supplies, production, and gasoline demand.
In January of this year, the U.S. used 4% less petroleum than we did a
year ago. (Oil demand was down 3.2% in February.) Furthermore, demand
has been falling slowly since July of last year. Ronald Bailey of
Reason Online has pointed out that worldwide production of oil has
risen 2.5% in the first quarter, while worldwide demand has grown by
only 2%. Production is expected to increase by 3.3% in the second
quarter, and by as much as 4.1% by the third quarter. The net result
is that the U.S. daily buffer for oil production against demand, which
was a paltry 1.5 million barrels as recently as 2005, is now up to 3
million barrels in excess capacity today.
So what is going on here? Why would our Energy Secretary say there's a
supply and demand problem when none exists? Why would he say that
speculators have little or nothing to do with the incredibly high
price of oil and gasoline, when it's clear they do? President Bush--a
former oilman--gives the ever-growing demand for gasoline as the
primary reason prices are so high, yet that notion can be dispelled
with one minute of research. That's the problem with rhetoric; it
rarely matches the facts.
3. Speculation is Up, and the Dollar Is Down
On the same day the President and our Energy Secretary made those
foolish comments, no less an authority than ExxonMobil (XOM) Chief
Executive Officer Rex Tillerson was quoted by Marketwatch as saying,
"The record run in oil prices is related more to speculation and a
weakening dollar than supply and demand in the market." He added, "In
terms of fundamentals, fear of supply reliability is overblown."
As for the speculators, in 2000 approximately $9 billion was invested
in oil futures, while today that number has gone up to $250 billion.
Now, if any publicly traded company had an additional $241 billion put
into its stock in the same period, its stock would rise out of sight
too--even if the company was not worth anywhere near that amount of
market capitalization.
Moving on to the weak U.S. dollar as a primary cause for skyrocketing
oil prices--there is "some" truth in that statement. But consider this:
The dollar has depreciated 30% against the world's currencies since
2002, while the price of oil has gone up 500%. So is it the weak
dollar that has caused a 500% increase in the price of oil, or is it
the extra $241 billion worth of speculation? You can make the call on
that one.
Possibly just to ensure oil prices don't respond to real-world market
conditions, Goldman Sachs (GS) forecast on Mar. 7 that turbulence in
the oil market could cause oil to spike as high as $200 a barrel. This
flies in the face of all known information--but then again, Goldman
Sachs is the world's biggest trader of energy derivatives, and its
Goldman Sachs Commodities Index is a widely watched barometer of
energy and commodities prices.
What Is Washington Thinking?
Rounding out the list of experts discussing our oil and gasoline
situation is Bill Klesse, head of San Antonio (Tex.) Valero Energy
(VLO). He spoke in San Diego a week after those comments from Goldman
Sachs, the President, and Secretary Bodman. Believe it or not, Klesse
said poor margins may cause Valero to sell one-third of its refinery
operations; he stated that poor margins in recent months had caused
planned refinery expansions--which would have produced 500,000 more
barrels per day--to be canceled. Moreover, according to a report from
Reuters on Mar. 11, 2008, Klesse recently released the information
that gasoline production has been curtailed in response to slowing
demand.
Imagine that: Refiners cut gasoline production, yet gasoline reserves
have grown to their largest since late 1992. So much for "surging
demand."
Klesse also called for the government to start imposing a tariff on
imported gasoline to protect U.S. refiners' profits. Protectionism? As
famed economist John Kenneth Galbraith correctly said, "In America,
the only respectable form of socialism is socialism for the rich."
Which takes us back to the original question: Why is Washington doing
everything it can to convince us there is a shortage when there isn't
one? After all, the only people they're protecting are those heavily
invested in oil futures--and that's to the detriment of all other
Americans.
We're Paying for What?
When it became undeniable that poor decision-making by company
executives had put a respected 85-year-old U.S. institution in
financial peril, why did the Federal Reserve rush in to save
investment bank Bear Stearns (BSC)? Of course, we need to restore
confidence in our financial institutions, but why protect the personal
assets of those who were responsible for the mess? Both the
corporation's officers and its board members should contribute their
personal assets toward saving the bank they put in the ditch--the bank
all of us are going to pay to bail out.
Instead, the Bush administration is protecting those responsible for
creating yet another speculative bubble in oil futures, and is
protecting investors in the ethanol industry--much to the detriment of
food-processing companies such as Pilgrim's Pride. And the net result
of all this is that the prices of crude and gasoline rise ever higher
thanks to a "shortage" that does not exist, while food costs are
soaring thanks in part to the ethanol mandate.
The Federal Reserve lowers interest rates, but the cost of mortgages
goes up six weeks in a row--and last month Bank of America (BAC) credit-
card holders started being charged more than 24% interest on new
purchases.
This is what they call "Republican Prosperity?" Ronald Reagan was both
right and wrong when he said, "Government is not the solution,
government is the problem." And government is still the problem.
Instead of a fair and open market they gave us a free-for-all
marketplace with no regulations at all, which lately these "bubble
boys" have sent south for all of us.
One would guess that Washington missed the obvious: Protect all U.S.
consumers and you're also protecting business expansion.
___________________________________________
Ed Wallace holds a Gerald R. Loeb Award for business journalism,
bestowed by the Anderson School of Business at UCLA. His column heads
the Sunday Drive section of the Fort Worth Star-Telegram, and he is a
member of the American Historical Society. The automotive expert for
KDFW Fox 4 in Dallas, Wallace hosts the top-rated talk show Wheels,
Saturdays from 8 a.m. to 1 p.m. on 570 KLIF AM in Dallas.
Copyright 2000-2008 by McGraw-Hill
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