Friday, April 28, 2006

Does Anyone Understand How Oil Is Priced?

Charles Krauthammer points to some personal history regarding President Bush's pandering call for an investigation into whether oil companies are price gouging:

Precisely 10 years ago (April 29, 1996) as gas prices reached a shocking $1.27 a gallon, President Bill Clinton ordered his Energy and Justice departments to launch investigations to find out why. In my column that week, I offered a wild guess as to why: "supply is down and demand is up." I offered Energy Secretary Hazel O'Leary and Attorney General Janet Reno a $100 bet (I roll high on sure things) that their million-dollar probes would do nothing more than confirm my hunch.

Do any of the cynics and demagogues even have any idea as to how oil is priced? It would seem that they are imagining that a group of oil barons are sitting around throwing darts and declaring prices. Perhaps that could have been the case in the 1970's, but not in this century.

Oil prices are set by commodities traders reacting to fluctuations in supply and demand. Demand is continuing to rise as Americans keep moving farther from work and buying SUV's to get there, while also refusing to build nuclear plants to provide electricity. Demand is also rising world wide as developing countries continue developing.

Supply is restricted by a war in the Middle East, a civil war in Nigeria, and a despotic leader in Venezuela. It is also restricted by regulations that have essentially prevented any new refineries from being built in the United States since the 1970's and that have prohibited oil drilling in areas where we know there are vast reserves.

But, while some political leaders (mostly known as Democrats) stoke the fires of ignorance and pretend that there must be some kind of price fixing, Republicans cower over an issue that they are sure most people will never understand, and they are giving in to the demagoguery.

One keeps wondering if anyone can emerge in this country with the wisdom and the courage to really govern.


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