We Need a Hearing on Fed’s Role in Gas Prices

May 13, 2011 By 40 Comments

With gasoline prices crossing the four dollar per gallon line in many parts of the country, the Republican majority in the House and the Democratic-led Senate have taken two very different approaches to address rising energy prices. Last week, the House passed a bill requiring the Interior Department to offer new lease sales in the Gulf of Mexico and off the coast of Virginia. Yesterday, the House passed another bill that would require the government to make decisions on drilling permits within sixty days. And, at the same time that the House was addressing the supply side of this economic challenge, the Senate was demanding that oil companies stop making profits.

Democratic senators grilled executives representing the nation’s five biggest oil companies, criticizing them for providing their shareholders with a return on investment and threatening to rescind tax breaks that the industry currently enjoys. The Senate hearing made for great Capitol Hill theater, and it will surely provide leading leftist senators with some great sound bites to prove to their constituents how hard they tried to fight the evil of Big Oil. But, unlike the House, the Senate did nothing to address the economic realities and energy challenges that we must deal with.

It’s embarrassing to find that United States senators don’t understand, or choose to ignore, the realities of energy production. The fact is that the margins that oil companies operate at have remained consistent for decades as a percentage of the cost of fuel and that government makes more on every gallon of gas sold than anyone involved in the supply chain. The reason gasoline is so expensive is because crude oil is so expensive – period. There is no price gouging. There is no profiteering. Some people like to blame rising prices on something they call “speculation,” but use of that particular word creates a mistaken impression. Crude prices are high because worldwide demand is expanding at a rate we have never seen and nobody is sure how we’re going to deliver enough oil to meet that demand.

Nations that understand what is happening – China and India in particular – are positioning themselves to secure the necessary supply by entering into long term, big-dollar deals for crude. Those kind of contracts reduce the projected supply available in the future and, as any tenth-grader studying Adam Smith can tell you, constricted supply — and rising demand means higher prices.

Pages: 1 2

Filed Under: Daily Mailer, FrontPage Tagged With: , , , , , , , , ,
About

Rich Trzupek is a veteran environmental consultant and senior advisor to the Heartland Institute. He is the author of the new book Regulators Gone Wild: How the EPA is Ruining American Industry (Encounter Books).

  • alvindchipmunk

    stop being asses DRILL DRILL DRILL. WHERE DO U DUNCES IN DC GET THIS RIDICULOUS NOTION THAT OIL IS BAD. THE WINNER IN D ELECTIONS TRUMP IS HE WHO ASSURED THE PUBLIC GAS PRODUCTION IS THE PRIORITY EVEN IF U HAVE TO DUMP THE EPA

    • john

      YEA im with you.

  • geez

    This is part of Obama's fathers dream he wrote about, and we are the beneficiaries. I say we send Obama back to his true homeland in Kenya. What better way to say thanks for nothing idiot manchild. Take your socialist crap, tele-prompters and Lurch, get the hell out of America. We can't afford your "leadership" anymore.

  • Amused

    Uh yea Rich , so it's the government with the most to gain from high oil prices ??? Well any 3rd grade school boy can tell you , it's the oil companies . I guess it escaped your "eagle-eye " notice , that they are posting historic record profits .
    I'm for drilling wherever , I'm against the administration restriction of permits , I'm against the notion that permits are the sole cause – oil comp[anies are not using existing permits . And WHAT has been done by the oil companies since the last several increases BEFORE the Gulf Spill ? Since 1972 ?

    • Ron Arteno

      Historic profit for historic demand!
      Big Oil gets 6 cents profit per dollar.
      The Tech industry gets 16 cents per dollar profit.
      Big Oil has one of the lowest profit margins of any industry.
      And, how much of their profit pays government for tax's, exploration, regulations, fee's and fine's? Big Government is the THEIF!

      • @Ron

        AMEN ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! There's nothing wrong with profit anyway. Our non-"third world" existence depends upon profit. Government is one thing that doe NOT make a profit, it runs by confiscating the profits made by everyone else. Instead of "downsizing" our lifestyles to be "green", lets downsize government control.
        There are enough companies out there to create competition (which will lower prices) and keep each other "in check".

    • Rick_in_VA

      You state that oil companies are not using existing permits. Most of those were for exploration. When you explore, you might find recoverable oil, or you might not. If there isn't enough recoverable oil to make it worthwhile, they are going to stop and try somewhere else. That's common sense and good business practice. Those are the permits not "being used".

  • Amused

    Rich you imply the 'government " is benefiting most from high oil prices " , and by saying THAT you imply , the present Administration , please specify , since gasoline taxes are levied by the politicos in Washington ….on BOTH sides of the aisle .
    Now , Rich , if you're saying that the CROOKS in Washington , "our politicians who monetarily benefit from the oil lobby " are benefiting from the high oil prices , then I can agree with that . Because that is exactly what is happening . And if you think those "oil futures " boys on Wall Streeet have nothing to gain , OR nothing to do with it , then Rich my freind ….you are NAIVE , very naive .

    • Rick_in_VA

      Some speculators win and some lose. The losers aren't reimbursed by the government, unlike GM, Chrysler, AIG, etc, etc, etc. They are using their own money and it's really nobody's business; not yours, not government.

      • James

        If you run a company you need to make a profit. Or why the hell else would you want to run a company. Maybe you should have done your homework and invested in oil.?????

  • tanstaafl

    No one can legislate supply and demand.

    Class warfare only works in a society where the lower classes can't buy similar toys as the rich.

    There's a sucker born every minute. – P.T. Barnum

  • http://www.ncfire.info James Johnson

    The law of supply and demand doesn't apply to gasoline any longer and that's the problem. We have an overabundance of oil. Producing more wouldn't do anything to gas prices…there's nowhere to put it. Our stockpiles are full. So I direct you to look at the Wall Street futures traders for the root of the problem of high gas prices.

    Ever notice every time we talk about drilling for oil, the price of crude suddenly drops? When we were all yelling "drill baby drill" two years ago, the price fell to $1.50/gal.

    Just one of the things that make you go hummmm!

    • Rick_in_VA

      There is enough blame to go around. You might start with OPEC. Their future relies on oil. Of course prices will drop when we talk about drilling here. That's just for show. They know it won't happen with the enviro-nazis in control. And a short time later, POOF! There go the low prices and we're back screaming about the high cost of oil. The only thing that's going to work is to actually start drilling and call their bluff.

    • saveUS

      Dear James,
      What the hell are you talking about?
      We have a president who have been destroying the oil business for almost 2 1/2 years! Green commie idiots are risking their lifes to preserve wild predators, such as wolves and tigers, with no gain for humanity at all. Capitalists are predators making huge profits for themselves (and for millions of shareholders of 401K plans) and their work results in a tremendous growth of the standard of living of almost all people piving on Earth. Imagine, the world without Bill Gates and after Lenin took over the world as he intended. Idiot John Lennon would have died because of hunger before writing his song.
      Yes, we should say: drill, drill, driil and start doing it! And these crooks talking about "climate change" should go to jail FOR LIFE. Idiots in the media do not care whether world's temperatures are going up or down. Just panic!
      If world speculators learn that the US is increasing dramatically oil drilling permits (at a peril of millions of caribou), and start to explore oil shale (as Canada is doing and sells the same oil to USA), the oil prices will drop like a rock. Five or more years before any production is made.

      • James

        If you live in the US you are a capitalist save US very uneducated I take it. Read any books lately LOL Read a few peer reviewed articles or a college book and you would realize that climate change is REAL. Wow you might have to give up your boat, or extra car, maybe even work more than forty hours per week. hey maybe you wouldn't be able to eat anything you wanted and wouldn't be able to drink beer and eat chips all the time. So horrible, wow you are right we need to lower gas prices so you can sit on your couch and watch cable TV.

        • coyote3

          "Climate change"????? I thought it was "global warming" Of course climate change exists, it has been going on since, well, since there was a climate. It is naturally occurring.

  • Alex Kovnat

    The idea of "Drill baby drill" is a very straightforward answer, but what is the question?

    If the only issue were shortage of oil, then Drill Baby Drill would be at least an arguable answer. But what if the real issue is not any shortage of fossil fuel, but rather a shortage of the Earth's atmosphere's capacity to absorb all the carbon dioxide the human race is generating? If so, then the least cruel solution is to let the price of gasoline remain high, so as to generate a firm, yet flexible incentive for us to use less. Let's face it: Mankind is an economic animal. People won't buy cars like the Chevrolet Volt out of idealism and concern for the environment. They'll do so when the cost of gas hits them in the wallet.

    • coyote3

      What if, Tejanos were Negro ministrels??? About as likely.

  • Stephen_Brady

    What is really needed are refineries, and an end to the EPA's regulations requiring multiple blends of gasoline. A new oil refinery hasn't been built in the US since the 1970's, and now 15% of our refinery capacity is threatened by the flooding of the Mississippi.

    New refineries, along with increased exploration/drilling, and an end to the EPA and it's regulations.

    • alexander

      EPA, in its stupidity, does NOT check old cars for pollution, only the new ones……
      Incredible………………………

      • JAmes

        Your right we should just do away with the epa and pump oil, fecal matter, pesticides and everything elese right into the water so we can contaminate our drinking water supply. GO BACK TO SCHOOL DUMBA$$

        • coyote3

          He never said "do away with the EPA", baboso. Indeed, right now, they are studying elminating the different "blends" of gasoline, and may just that.

  • Reason_For_Life

    Sure, and we can solve the obesity problem with more expensive food, not to mention get kids more exercise by having more expensive TV's and video games. We can make homes more expensive and get people to move into smaller houses thereby freeing up more space.

    We can, if we want, completely reverse the material progress of the last hundred years by making everything more costly. Then we can look forward to the shorter lifespans of the early 1900's too.

    Human progress has been made possible by greater productivity – getting more goods for less effort. In terms of hours worked to pay for various things we want there has been continual improvement for hundreds of years up until the Bush-Obama administrations where progress has virtually come to a halt.

    If you want a better standard of living you need cheap energy and the way to get that is "drill, baby, drill".

    The earth is not getting warmer because of CO2. That canard has been laid to rest more than once. Just as the power of enemies is exaggerated to justify stripping people of civil liberties, exaggerating the effects of CO2 is being used to strip people of their economic liberties.

    • James

      You stupid read any peer reviewed journal on climate change, it real, so is the shrinking water supply. Lazy ass

      • coyote3

        I've read some, and they are theories. Of course it is "real" it has been occuring since there was a climate.

  • alexander

    the moment we did say DRILL – Arabs cut the price by half….and we did NOT drill, so they see our bluff….
    DRILL< DRILL NOW!!!!
    KKlinton said "…but it would take us 10 years to see the final product" – and he said it 12 years ago….
    Ale the leftisits really that stupid? Well, they convince us about it every day….

    • Rick_in_VA

      The fact is it wouldn't take 10 years. Some areas were so close to production before the nonsense started that we could have had oil flowing inthe pipelines 3-5 years at the outside.
      Now many of the oil rigs have been moved to greener pastures. (i.e. other parts of the world)
      And our "saviour" is giving our tax dollars to Brazil to help them drill.

  • fed up

    stop moaning we are £4 a ltr.

    • Rick_in_VA

      Not our fault.

  • CHARLEY 60

    Look at the fact's they want to make us accept. No money in it for the Oil and Gas industry? In 2009 they reported they paid $180,000,000.00 for DC lobbying. In 2010 It was, as they reported, $145,000,000.00. In the 09/10 election they reported giving an additional $35,000,000.00 in campaign contributions. Corporations don't put that kind of money up not expecting a return. Our DC politicans are sure seeing they are getting it. Ft. page mag. are you also getting direct or indirect contributions to print pro big oil stories? A serious question.

    • mark

      Sorry, Charlie: There has to be profit motive in it for companies to work. Accusing Frontpage of being a shill for the oil companies is easily detectable nonsense thrown out by leftists and others brainwashed to hate "big oil." You are so transparent. You don't know much. Venezuela subsidizes their nationalized oil and sells it below cost. Chavez is a criminal, and sought to extort additional millions from oil companies prior to taking them over. You've obviously made up your mind and I'm wasting my time when all you can do is accuse Frontpage of collaborating with "Big oil."

  • CHARLEY 60

    And in Venezuela, reported world gas prices/ gal. 2 weeks ago, gas at the pump was 8 cents, pump your own. Yes turkey was up around $10.00 as is many countries also high. They use gas taxes to eliminate a lot of the others we also have to cough up.They are not really high on the gas price. I agree we should have the beakdown on the pumps price posted. That would stop the point at each other excuse routine and will not happen.

  • Larry K.

    One factor everyone fails to mention is US monetary policy. QE-1 and QE-2 has added more than 20% to the cost of gasoline by reducing the value of the dollar

  • James

    Most of you are all stupid and should go back to school and study about the environment an fossil fuel's. The climate is changing and fossil fuels is limited. Any person who has a REAL education knows that. "drill baby Drill" and I thought no one would ever be that f*#en stupid. Wake up and smell the aroma. It's your stinky fats ass needs to get off the couch, sell you SUV, Boat and extra car and realize how good we have it here in this country. Whining about an extra $200-$300 per month on gas big deal. Take a look at the rest of the world you lazy ass people, get an extra job work more hours.

    • Chiggles

      YOU get one, d1ckbreath.

    • coyote3

      Yeah, I'll do that, just as soon as you go back to school to study, English.

    • coyote3

      Yes, let's look at the rest of the world. I believe we should look at other altervatives. Let's tax other countries, take their oil, and crops, in cases where they have no oil.

  • Blugh

    I disagree, the government has an amazing ability to screw everything up.
    By the way, does anyone know the profit-MARGIN (not profit) "Big Oil" is making?

  • coyote3

    We "should…" Just as soon as you can show the to power enumerated in the constitution and delegated to congress for doing so. Oh, there actually isn't one. Well, then if that is what you want to do, then you need to get your representatives to sponsor a constitutional amendment to give congress that power. If you can get it passed, then it can be done.

  • Tresor

    The real issue here is if gas prices are going up that means heating bills will also be more expensive. Homes with gas furnaces and propane heaters will really need to budget much more just to keep up with these price increases. That's not even to mention that gas furnaces can sometimes have problems that need repairing, and fixing these issues is usually not cheap either. Then again, neither is buying a brand new gas furnace. Either way higher gas prices will effect the heating market in a way that furnace prices will also be on the up.

    Click here for gas furnace prices