The Great Oil Price Debate
This weekend my fiancee and I visited my future in-laws. At some point during conversations the topic of oil prices came up. Her parents are not particularly up to speed on investing or how normal business works as both of their paychecks come from the government. The topic came up because of the ridiculous behavior of the truck drivers recently.
Her parents wanted to place the blame for the price of fuel on President Bush. I was quick to point out the President has no control over fuel prices as they are determined by futures traders in New York and Chicago. Somehow they get the idea that since the Bush family is currently based in Texas, where oil is produced, that somehow he must have a connection. The fallacy here is that the Bush’s are as much Texans as the Clinton’s are New Yorkers, the Bush family is actually from Connecticut. If you think the situation would be different if Al Gore had been elected, you obviously haven’t seen “The Inconvenient Truth.” In this scenario the cost of complying with harsh environmental restrictions would be passed back to the consumer through higher prices. Be careful what you wish for…
The blame then shifted to the oil companies. Sure they made record profits but they also sold record amounts. Could you blame Nintendo for making record profits from selling Wii’s? They have a product that people want and they sold more of it than ever before, a recipe for high profits. I pointed out the reason that the price is up is because of record high demand coming from India and China but their very small view of the world immediately pushed back to the rationale that the oil companies must be at fault. It’s worth noting that Exxon-Mobile paid almost $30 billion in taxes last year on revenue of $70 billion for a net of $40 billion profit. Even if the oil companies took $0 of profit for the shareholders, it would likely only reduce the price of fuel by about 20%.
They pointed out that people need oil to heat their homes and it’s not right to have people freezing because they can’t pay the bill. I pointed out that nobody is forcing them to live in a cold climate, a bus ticket to the south costs less than 100 therms of heating fuel. Also for much of New England natural gas is a choice. If you hate the oil companies so much, switch to gas. It’s also worth noting that the situation is very different elsewhere. Try visiting northern Europe and stay with somebody who lives there, not some hotel catering to tourists. You’ll find that the thermostat is frequently set at 55 or less if the central heat is even turned on.
The reality is that oil prices will never come down until we start using less. When those 2 large SUVs that are in her parents garage are replaced with small fuel efficient sedans will be the day that we start to see oil prices moderate. We don’t need Al Gore to tell us to use less energy, our fuel bills are giving us the same message. We have a choice: use less or pay more. We can complain about the government until we are blue in the face, we can tell them we want to use more and pay less, but it won’t change things.
The funny thing about what those truck drivers did is, by blocking traffic they forced everyone behind them to use more gas feeding the very industry they were trying to protest.
