PARAGON
05-12-2005, 07:53 PM
Costa: On gasoline prices and giant vehicles in troubled times
By Peter Costa
Thursday, May 12, 2005
Gasoline apparently is the only commodity that does not obey the law of supply and demand.
It seems that every time we go to the pumps the prices are slightly higher than the last time we filled up. This phenomenon occurs whether there are oil tankers clogging all the harbors on the East Coast or whether there is a solitary tanker just leaving the Strait of Hormuz with seven barrels of crude oil and a quart of extra, extra, ultrafine virgin olive oil. (Understanding olive oil labels requires a Ph.D. in organic chemistry and a knowledge of the black arts of alchemy. But that's another story.)
With a precision of movement that would impress Isaac Newton, gas prices go up during the summer precisely when we need gasoline the most. Now on the surface this may seem logical and consistent with the law of supply and demand. The more a commodity is needed but is scarce, the higher its price. Well, no one will say definitively that gasoline is scarce. In fact, there are some experts who say there is enough gasoline at present to meet demand. So, why do the prices rise when supply is still greater than demand?
I blame the Hummer. This giant SUV gets about 6 miles per gallon and people are driving them everywhere. Desperate 108-pound housewives get ladders and climb into their 3-ton Hummers to drop off 2-ounce letters at the post office. Their husbands drive to work in vehicles named for huge regions - Yukon, Dakota, etc. - and sit idling in traffic generating more greenhouse gasses than some island nations.
Everyone in the family simply must have his or her own muscle vehicle. Driveways have become tarmacs for wide-body cars and trucks waiting to take off to the mall or the convenience store. Filling up their tanks requires taking out an equity line of credit.
Hybrid fuel-electric cars that get 50 miles per gallon or more are still prohibitively expensive and only a small percentage of drivers are willing to give up their tanks for such econoboxes. In fact. I predict that quad-cab trucks will soon become even larger behemoths with numbered seats just like a Boeing 747.
I remember the gas line days of the Arab Oil Embargo of 1973-74 and the public that responded to the crisis by buying and driving small, fuel-efficient cars. Inflation then was horribly high, 8.5 percent, and industrial economies became more and more dependent on imported oil for their continued growth and success. On October 17, 1973, the Organization of Petroleum Exporting Countries imposed an oil embargo against the West in retaliation for Israel's pushing back the attacks from the armies of Egypt and Syria in the so-called Yom Kippur War.
Crude oil before the embargo cost $3 per barrel and jumped to $5.11 overnight. It rose to $11.65 by January of 1974. After the embargo, the price quadrupled from 30 cents a gallon to the then unheard-of price of $1.20 per gallon.
The difference this time is that the Saudis are pumping extra oil and U.S. and Coalition forces control Iraq's oil fields. In addition, the United States has the ability to receive 2,000,000 barrels per day from the Trans-Alaskan oil pipeline, which was completed in 1977. Today, debate continues over whether Mideast instability necessitates oil drilling in the Arctic Wildlife Refuge.
So, history tells us that soaring oil prices can throw us back into a serious recession like 1973-74. But this time, people don't seem likely to rediscover the 4-cylinder compact car. Ask anyone driving an Expedition or an Explorer or another E-vehicle. Like the supertankers that fuel them, it takes an enormous amount of time and whole oceans to turn around our big-vehicle mania.
See you at the pumps.
Peter Costa is a senior editor for the Community Newspaper Company.
By Peter Costa
Thursday, May 12, 2005
Gasoline apparently is the only commodity that does not obey the law of supply and demand.
It seems that every time we go to the pumps the prices are slightly higher than the last time we filled up. This phenomenon occurs whether there are oil tankers clogging all the harbors on the East Coast or whether there is a solitary tanker just leaving the Strait of Hormuz with seven barrels of crude oil and a quart of extra, extra, ultrafine virgin olive oil. (Understanding olive oil labels requires a Ph.D. in organic chemistry and a knowledge of the black arts of alchemy. But that's another story.)
With a precision of movement that would impress Isaac Newton, gas prices go up during the summer precisely when we need gasoline the most. Now on the surface this may seem logical and consistent with the law of supply and demand. The more a commodity is needed but is scarce, the higher its price. Well, no one will say definitively that gasoline is scarce. In fact, there are some experts who say there is enough gasoline at present to meet demand. So, why do the prices rise when supply is still greater than demand?
I blame the Hummer. This giant SUV gets about 6 miles per gallon and people are driving them everywhere. Desperate 108-pound housewives get ladders and climb into their 3-ton Hummers to drop off 2-ounce letters at the post office. Their husbands drive to work in vehicles named for huge regions - Yukon, Dakota, etc. - and sit idling in traffic generating more greenhouse gasses than some island nations.
Everyone in the family simply must have his or her own muscle vehicle. Driveways have become tarmacs for wide-body cars and trucks waiting to take off to the mall or the convenience store. Filling up their tanks requires taking out an equity line of credit.
Hybrid fuel-electric cars that get 50 miles per gallon or more are still prohibitively expensive and only a small percentage of drivers are willing to give up their tanks for such econoboxes. In fact. I predict that quad-cab trucks will soon become even larger behemoths with numbered seats just like a Boeing 747.
I remember the gas line days of the Arab Oil Embargo of 1973-74 and the public that responded to the crisis by buying and driving small, fuel-efficient cars. Inflation then was horribly high, 8.5 percent, and industrial economies became more and more dependent on imported oil for their continued growth and success. On October 17, 1973, the Organization of Petroleum Exporting Countries imposed an oil embargo against the West in retaliation for Israel's pushing back the attacks from the armies of Egypt and Syria in the so-called Yom Kippur War.
Crude oil before the embargo cost $3 per barrel and jumped to $5.11 overnight. It rose to $11.65 by January of 1974. After the embargo, the price quadrupled from 30 cents a gallon to the then unheard-of price of $1.20 per gallon.
The difference this time is that the Saudis are pumping extra oil and U.S. and Coalition forces control Iraq's oil fields. In addition, the United States has the ability to receive 2,000,000 barrels per day from the Trans-Alaskan oil pipeline, which was completed in 1977. Today, debate continues over whether Mideast instability necessitates oil drilling in the Arctic Wildlife Refuge.
So, history tells us that soaring oil prices can throw us back into a serious recession like 1973-74. But this time, people don't seem likely to rediscover the 4-cylinder compact car. Ask anyone driving an Expedition or an Explorer or another E-vehicle. Like the supertankers that fuel them, it takes an enormous amount of time and whole oceans to turn around our big-vehicle mania.
See you at the pumps.
Peter Costa is a senior editor for the Community Newspaper Company.