[Allan Topol / AllanTopol.Com]
Lightning paced thriller writer
of International Intrigue
National Bestselling Author

Hot Air at the Gas Pump
by Allan Topol, [IMAGE]2007


Photo Courtesy: Julie Zitin
[Allan Topol / AllanTopol.Com] Washington is a great place. Up on Capitol Hill, home of the U.S. Congress, Supreme Court and numerous other governmental agencies, sits a lonely Exxon gas station. Some visitors have said, “what’s that doing here?” It seems out of place in the solemnity of Capitol Hill. These people don’t get it. This Exxon station serves a significant political purpose. Each time gasoline prices spike up, as they have recently, numerous senators and congressmen schedule photo op press conferences at the Exxon station to prepare video clips that will appear on the nightly news in their home districts. In these video clips, the congressmen and senators are blasting “big oil” and telling constituents that they are hard at work doing something to alleviate the problem, when in fact they know full well absolutely nothing is getting done. The Exxon station is such a perfect setting for these announcements that if it weren’t here, Congressmen and Senators would pay a set designer to build it just for their press conferences.

To be sure, I am unhappy as all of you are, at paying $40 or $50 to fill up my tank. I remember growing up in Pittsburgh, Pennsylvania when $2 or $3 went a long way toward filling the tank of the family car. On the other hand, there is so much that is disingenuous about this political bluster that it’s hard to know where to start.

First, with respect to gasoline prices, the politicians who declared last week that the price of gasoline recently “set a record” at $3.07 a gallon are simply incorrect. In (real) inflation adjusted dollars rather than actual dollars, the price was higher for gasoline in 1981.

Then there is the scapegoat. Yes, oil companies are reporting record profits. However, oil companies are making about 13 cents on a gallon of gasoline. At the same time, the federal government makes 18.4 cents in taxes and various state and local governments make more than twice that amount. As the price goes up, so do these governmental revenues. Why not criticize the federal or local governments for gouging as well as Exxon and Chevron.

Then there’s the issue of what is causing the various price increases in gasoline. Prices were high last summer, then plunged markedly lower until this spring when they spiked upward again. These sharp movements are due to market economics. In plain words, it’s a question of supply and demand.

On the demand side, the American people may whine and curse when they fill up at the pump, but the fact of the matter is we continue to drive more than ever. Gasoline consumption has increased more than two percent in the last year. We continue to buy huge gas guzzling SUVs and minivans. Count them sometime on the road or in a parking lot. You will be astounded at what a huge percentage of the total vehicles they comprise.

The supply side is a more complex issue. The Exxons and Chevrons no longer control the vast majority of oil in the ground as they once did. Nations such as Saudi Arabia, Iran and Venezuela have taken control of that oil. They would like to dictate the price of oil, particularly OPEC. However, even these oil producing nations are subject to what happens in the marketplace.

Last summer, with fears of hurricanes that would disrupt U.S. oil production in the Gulf of Mexico, worries that U.S. and Iran were on a collision course that would disrupt the flow of Middle Eastern oil, the war in Lebanon, and increased violence in oil rich Nigeria, everyone who had use for gasoline along with speculators, hoarded it to be covered if the flow was interrupted. Once these various contingencies settled down, there was plenty of oil available from the stockpiles. So much that OPEC members reduced their production to avoid a sharp price decline.

As anyone who reads my column knows, I have no great fondness or sympathy for the oil producing nations of the world. However, this time the recent spike in prices is due less to their production cuts than the fact that we have inadequate refining capacity in the United States. Much of our refining infrastructure is ancient. Like all antiquated equipment, it breaks down and is in need of constant repair. It has been years since anyone has built a new refinery despite increased demand. Given the environmental and other legal obstacles, including the NIMBY attitude of most communities, it is hard to imagine how a new refinery could ever be built.

So the next time you feel miserable at the pump, there are lots of people you can blame, including the very government officials who are seeking to capitalize politically on the situation.