Cost of relying on oil too high

Ben Scheelk

I am not sure what is more shocking: graduation looming close on the horizon, or the fact that the price of gasoline has gone up more than 50 cents since I last half-filled my tank (the signature of a poor college student). Granted, I don’t drive much, and I try to ride my bike most places, but I have noticed the price of gas is on an upward trend that has seemed to accompany, albeit in a somewhat delayed manner, the revolutionary events which have unfolded across the Middle East over the course of the last few months.

Yet, how are the two connected? Of course oil prices should rise if there are problems on the supply side; but with the world’s reserves still relatively unaffected, including the United States, whose rapacious energy appetite drives a significant portion of global demand, what is to account for the recent dramatic upswing in cost? Beneath the veneer of the large plastic numbers hanging on the sign outside the gas station exists a rich and intricate web of production, transportation, and distribution that spans the world, and, of course, doesn’t always play by the rules—the geography of oil.

Although you may want to point your finger at your local gas station as the culprit, in reality, retailers have little flexibility when it comes to setting the price, and tend to make very little money from selling gas. Their goal is for you to buy things in the store that has higher profit margins. We only have ourselves to blame, because how our insatiable thirst for sweet crude is driving the demand—and our planet to the brink of environmental disaster.

When the price of oil rises quickly, like it has over the last few weeks, emerging economies, in which people are already living by razor-thin margins, are the most dramatically affected. In developed countries, like the United States, concerns about core inflation (which doesn’t include volatile energy and food prices) set in when the price of oil begins to affect the cost of production throughout the rest of the economy, making consumer goods increasingly expensive resulting in higher inflation. Meanwhile, resource-rich countries, like Russia, greatly benefit from an upsurge in prices.

The crude futures market is largely swayed by the fewer number of purchasers at the refinery level. Although the U.S. benchmark for crude oil, West Texas Intermediate, has remained relatively stable due to presently large U.S. gas inventories, the global benchmark, the price of Brent Crude, has risen as fears that violence will escalate and chaos will persist in the Middle East have resulted in widespread speculation and skyrocketing prices.

Many politicians are voicing concern that our economic recovery is imperiled by the recent increases in the cost of oil and have used this crisis as a pretense for advocating for increased domestic drilling, including within environmentally sensitive areas like the Arctic National Wildlife Refuge, new offshore and deep water areas, and risky cold water sites. They also propose an end to the Environmental Protection Agency’s ability to regulate greenhouse gases, a move which derives from the convoluted belief that making factories and power plants more efficient will affect the price of gasoline.

Just this week, the Obama Administration granted the second deep water drilling permit since the Deepwater Horizon incident. The first permit was issued last month. Meanwhile, Kenneth Feinberg, who was assigned to manage the $20 billion compensation fund for the Gulf Oil Spill, has embarked on the daunting task of calculating the final payments for the largest environmental disaster in our nation’s history—which, of course, took place just this last summer.

Some claim we need to tap our energy resources to create jobs and wealth in order to support environmental protection initiatives. They point to North Dakota and how their expanding oil drilling industry is creating a boom for the state’s economy, and Ohio, where they have at last developed the capability to exploit the state’s valuable shale gas deposits.

However, regardless of the untapped reserves we may have in the United States, a drop in demand is the only way to reverse the trend of higher gas prices in the future. The bottom line is that all the oil in the world is not going to be enough forever if demand continues to climb and measures are not taken to conserve oil’s future supply. While countless administrations have promised to break America’s addiction to oil, little has been done to realize our energy independence. Since last year’s failed climate bill, one of the only tangible steps seen in a while is a proposal from the Obama administration calling for tougher emissions standards (+35 mpg) by 2016.

These are issues that desperately need to be addressed, and not to the detriment of economic growth, but rather in the interest of long-term economic sustainability. It is clear that the price of gasoline is getting far too expensive—if not yet for consumers, then certainly for our planet.