Market more powerful than big oil
November 13, 2008
It seems like yesterday mobs clamored for government to spank Big Oil for gouging. “Windfall profit taxes!” they demanded as gasoline prices in June rose to $4.33 nationally.
What a difference a season makes. Gasoline prices now are around a buck and half in some parts of the nation and $2.40 on average for New Mexico, according to AAA auto club. Unsurprisingly, price relief came without Washington’s intercession.
It was almost otherwise. When gasoline prices topped $4 a gallon, Senate Democrats last summer wanted the federal government to reduce major oil companies’ profits as much as $12 billion. The White House threatening a veto, the Senate measure died.
But oil now costs less than half last summer’s price, posing harder economic times for politically correct, government-subsidized fuels like ethanol. Even for subsidized so-called renewable alternative fuels, appeal wanes as plentiful, conventional fuel declines in price.
“If prices keep dropping and stay down, future fuels like cellulosic ethanol and biodiesel will have a harder time competing,” the San Francisco Chronicle recently reported.
Economic reality is stubborn. Supply and demand still hold sway. Economies ebb and grow in response to the complexities and interconnectivity of countless factors. Despite conspiracy theorists, most factors are beyond control of producers and retailers.
Light, sweet crude oil has fallen to $59 a barrel on the New York Mercantile Exchange, the lowest price in 20 months and a fraction of July 11’s $147.
“There is just no demand for gasoline these days,” one market analyst told the Los Angeles Times. “In the past, when prices dropped after a high spike, demand always came roaring back, but not now with the economy struggling this much.”
Such unpredictable economic fluctuations in the global market for a ubiquitous, virtually necessary commodity are all the more reason government interference is unwise, irrespective of clamoring mobs and Nanny State inclinations.
“It all comes back to the economy and how deep folks think the recession will be,” another analyst told Bloomberg.com. “Demand is poor and should get worse as the recession deepens.”
While the Organization of Petroleum Exporting Countries decided recently to reduce production because of falling demand, a cold spell could suddenly boost heating oil demand and drive prices back up. “Perhaps consumer sentiment will get strengthened after the national election and people will say, ‘Hey, gasoline prices are cheaper. Let’s go take a trip,’” an AAA spokesman told the Sacramento Bee.
Buying decisions affecting supply and demand ultimately will tell the tale, we hope without government meddling corrupting the equation.