Keep the Focus on Fuel Competition

Thursday, December 4, 2014

In an article in USA Today, Jonathan Fahey says the dropping gas price is so surprising, people are sharing photos of it. He writes about the reasons it's getting cheaper, and fails utterly to give the fundamental cause of the lower price, or what we might do to keep the prices low. Here are some excerpts from the article, starting with the reasons:

...demand isn't rising as fast as expected, drillers have learned to tap vast new sources of oil, particularly in the U.S., and crude continues to flow out of the Middle East.

Seasonal swings and other factors will likely send gas back over $3 sooner than drivers would like, but the U.S. is on track for the lowest annual average since 2010 — and the 2015 average is expected to be lower even still.

Oil fell from $107 a barrel in June to near $81 because there's a lot of supply and weak demand. U.S. output has increased 70 percent since 2008, and supplies from Iraq and Canada have also increased. At the same time, demand is weaker than expected because of a sluggish global economy.

In the past, a stronger economy in the U.S., the world's biggest consumer of oil and gasoline, typically meant rising fuel demand. No longer. Americans are driving more efficient vehicles and our driving habits are changing. Michael Sivak of the University of Michigan Transportation Research Institute calculates that the number of miles traveled per household and gallons of fuel consumed per household peaked in 2004.

The drop will save the U.S. economy $187 million a day, and also boost the profits of shippers, airlines, and any company that sends employees out on sales calls or for deliveries.

Whenever fuel prices drop, the economy does better. Five of the biggest airlines reported very strong quarterly earnings mostly because fuel prices have dropped 15% since September. When fuel is less expensive, almost everything becomes less expensive. That's one of the biggest selling points of the Open Fuel Standard. Right now, global commodity prices are falling around the world.

The real cause of the global drop in oil prices is an overabundance of oil on the market, caused by OPEC's surprising move to keep their production high regardless of new sources of oil on the market. Another way to describe the cause is that American oil producers are adding more oil to the market and OPEC is not responding the way it has traditionally responded (cutting its production to keep oil scarce and the price high).

Why do you suppose they haven't cut their production?

"At a recent oil industry event in London," writes anchorwoman Trish Regan, "OPEC's Secretary-general Abdullah al-Badri told reporters, 'If prices stay at $85, we will see a lot of investment going out of the market. About 65% of the producers, they have high costs. Not OPEC.'"

OPEC is playing monopoly with the world's economy. Once they've killed off interest in new oil investment, they can safely raise prices again.

If you'd like to end our vulnerability to OPEC's manipulations, keep working toward fuel competition while oil prices are low. There are many reasons to achieve fuel competition besides the economic ones, although those would be reasons enough. Here's a summary of why its worth fighting for: Fuel Competition Will Change The World.


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