Refueling OPEC
By Charles Komanoff and Michael J. Smith
(Published in The Washington Post, February 23, 2000)
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For the first time in almost 10 years, crude oil prices have risen above $30
a barrel. Heating oil, a vital fuel in the Northeast, is at $2 a gallon,
double the price of a year ago, and gasoline could top $1.75 by summer.
What's going on?
The simple answer is that for the past six months, the member nations of
OPEC have constricted supply by several million barrels a day. Inventories
are shrinking fast and sellers have the whip hand.
But that's only half the picture. The oil equation has a demand side as
well, although we prefer to ignore it. Supply is sexy and subject to
exciting quick fixes, such as draining the strategic petroleum reserve or
sending soldiers to tap the barrel with bayonets. Demand appears, at first
glance, less tractable; it is the sum of small actions by millions of
drivers and householders.
But these individual choices are shaped by how our vehicles are engineered
and how our destinations are scattered across the landscape. Demand is a
thing that policy has created, and it is something policy can change, though
not overnight. It is undeniably a disagreeable subject, however, because to
look closely at it is to confront some unpleasant realities about the
"American dream."
The great economic expansion of the '90 was, metaphorically, built on boxes.
The box that grabbed all the attention was the personal computer. But other,
bigger boxes played their part as well.
The big box on wheels - the sport utility vehicle - pumped an infusion of
cash into the American car industry. The big-box stores sweetened the profit
margins of the retail sector. And with these two came yet another wave of
suburbanization, this one strewing millions of new big-box houses around the
outer metropolitan fringe. And these big houses have big, fuel-guzzling
furnaces.
Driving all those big vehicles back and forth between home and shopping and
work takes a lot of gasoline. In just 10 years, from 1990 to today, U.S.
gasoline consumption jumped by 25 percent, or well over 2 million barrels a
day. Half the increase is because we're traveling farther, and the other
half is because SUVs and other "light trucks" are exempt from car
fuel-economy standards.
The combination has contributed as much to the supply-demand imbalance as
the OPEC cutback has. In fact, it is our drunkard's thirst for gasoline,
more than any other single thing, that gave OPEC its opportunity. Unlike
other oil producers, the OPEC nations have considerable spare production
capacity; thus, when demand increases, their share increases more rapidly.
Last year, for the first time since the Gulf War, the cartel's share of
world production approached 45 percent, the level it has traditionally
needed for market dominance. U.S. motorists have put OPEC back in the
driver's seat.
Is there a happy ending? It depends. In one scenario, the price of crude
settles at $30 a barrel, and consumers learn to live with it. Once stability
returns to oil markets and the opportunity for speculation and price gouging
is eliminated, gasoline and heating oil should settle at around $1.50 a
gallon - a new high but still affordable for the politically crucial middle
class. Prices at this level might promote somewhat less wasteful patterns of
use.
Or, OPEC could fracture again. Just a few member states cheating on their
quotas would be enough to reverse market psychology and send prices
plunging. Our decades-long oil-fueled booze-up could then continue a while
longer, with predictable consequences for our social health.
We haven't quite reached the point of delirium tremens - yet. But the
headaches we've had over the last few weeks are trying to tell us something.
A lifestyle based on the hugely disproportionate consumption of oil will
take its toll; and all our big boxes will sooner or later put us in a very
uncomfortable box indeed.
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Okay I have too much time on my hands today. But I thought it was
interesting, kind of goes along with "Bicycles and the cost of gas." Oh yeah
and I found this on http://cars-suck.org/ if you want to read more of their
thinking.
Ken
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