quarterly-report.com Political Commentary by James R. Audet

U.S. Weekly Retail Gasoline Prices

March 23, 2000
225th anniversary of Patrick Henry's "Give me liberty or give me death" speech

The Department of Energy (DOE) reported this week that the average price for unleaded, regular gasoline rose to an all time record high of $1.53 per gallon.  Gas cost an average of $1.27 a gallon the last week in December.  This is a 20 percent rise in three and a half months.  In a recent analysis of spiraling fuel costs, the DOE predicted that gasoline could reach $2.00 by the summer.  It is a pity the DOE concerns itself with averages.  In Nevada, gasoline is already $1.80 a gallon.  By their regretful prognostication, Nevadans will soon be paying $2.30 a gallon.  This is about double what gasoline cost last year.

Much has been written about the reliance of Americans on cheap oil to sustain their prolific ways of energy use, particularly for vehicle transportation.  There is truth in this.  The failure of the Clinton Administration to address the energy efficiency of automobiles and light trucks during the last decade will be addressed in Part 2 of this Editorial.

However, the present crisis is not a question of whether prices are high, but the speed at which they are rapidly escalating.  For nearly all Americans, the cost of energy is a vital component of their monthly budgets.  Price certainty is vital.

Principally through DOE Secretary Bill Richardson, the Clinton Administration has flooded the airways with near daily updates about its efforts to stem the increases and placate the country that it is doing "all it can."  This crisis, as with heating oil price explosion this winter, caught the Administration by surprise.  Now, an energy shortage has caused Americans to burst with wrath.  The public's discontent -- justified by the rapidity of the increases -- demonstrates the Clinton Administration's dismal failure to structure a 21st century energy policy.

The Administration's inability to acknowledge a heating oil shortfall last summer and to take steps to minimize its impact to consumers is atrocious, as the current energy crisis is one of inadequate gasoline and petroleum stocks.  Cuts in Organization of Petroleum Exporting Countries (OPEC) and non-OPEC production in the last year have left the United States handicapped by a supply squeeze.  Foreign oil exporters trimmed crude oil production by 4.3 million barrels (about 7.5 percent) last year.  During the period, December 1998 through March 7, 2000, crude oil has risen from below $10 a barrel, a twelve-year low, to over $34 a barrel, the highest level since the Persian Gulf War.  Figures for the week ending February 26 show gasoline stocks were 197 million barrels from 229 million a year ago (a 14% drop) and crude oil at 286 million barrels versus 336 million (a 15% drop) for the same period.  Reserves of spare oil are at their lowest level in two decades.

Supplies do not drop overnight.  The severity of the declines, particularly during an economic expansion, indicates that shrinking inventories should have been obvious sometime last summer.  The Clinton Administration had a duty to inform the American public that a shortage, hence higher prices, was on the horizon.  It failed to give any warning last year, and the country now suffers for its malfeasance.

OPEC certainly succeeded in getting it its price increase -- a 240 percent one.   On the one hand, Clinton states his want to save the social security trust fund.  With the other hand, he steals an "energy premium" from the pockets of all persons, a premium that is particularly oppressive to persons on fixed incomes.

The Clinton Administration's failure to monitor the decline of petroleum reserves suggests that U.S. energy policy is either non-existent or in shambles.  Energy policy is a volatile topic, and for eight years -- since the oil price collapse in 1992 -- energy costs have not been a political issue.  Consequently, there has been no reason for Clinton to propose any controversial action.  This, of course, is a cowardly approach to fulfilling his oath of office and is likely borne of the political firestorm that consumed his health plan early in his first term.  What was learned from that lesson can be characterized as the Clintonian way: wait for a crisis to develop, then come to the rescue like cavalry to a besieged settlement.  This is indeed what Clinton did in his March 18 radio address in which he requested that Congress: (1) Create an emergency 2 million barrel heating oil reserve; (2) enact tax incentives to promote energy conservation and alternative fuels: and, (3) enact tax incentives to spur domestic oil production.  This "emergency plan" demonstrates a clear failure to develop a national energy policy.  Clinton's dereliction of duty transcends negligence as the strategic necessity of energy sufficiency has been compromised.

The Administration failed measurable in its obligation to start its diplomatic efforts with foreign oil producers sooner than it did.  Richardson should have worked with OPEC last year to reverse its cuts in crude oil production.  Simultaneously, he should have developed an interim energy policy to deal with the coming crisis.  He did neither.  Could it be that Richardson was too busy defending his department from accusations of security breaches at Los Alamos National Laboratories to be interested?  Could it be that Clinton was too busy defending himself against the moral turpitude of his actions in the White House to care?  Is there a coincidence that international production cuts took place during the investigation and impeachment of the President?  You be the judge.  The obsession of these men to save their reputations is to blame for the rapid rise of energy prices this winter.

Richardson is a political hack of the worst kind.  He dutifully follows the orders of the Administration's media advisors; he fears to take initiative to redress problems.  Could it be that the United States has no energy policy because an incompetent is running the DOE?  Richardson cautioned the House International Relations Committee on March 1 that "We cannot sustain this imbalance between supply and demand without risking serious repercussions for the world economy (read, United States economy).  Rep. Gilman, R-NY, questioned, "Why has the Administration sat idly by?"

Self-service to one's own needs is not a basis for effect leadership.  Both Clinton and Richardson embody an egocentric "save thyself" philosophy.  We would best serve ourselves by sending these so-called government servants packing.

The Clinton Administration now slides on a film of oil as it searches for an energy policy that is politically acceptable, both domestically and to OPEC and non-OPEC producing countries.  Heretofore, there has been no need for a coordinated policy because oil prices, on an inflation-adjusted basis, have been at the historically low levels.  Conservation policies of the 1970s and 1980s have helped to reduce demand during the longest business expansion in the nation's history.  Non-benignly, Clinton has road the coattails of prior conservation policy as we shall see in Part 2 of this Editorial.

Nevertheless, the Administration, using its finely tuned spin control, has blamed the crisis on the OPEC cartel, instead of its failure to develop policies that would guarantee stable energy prices.  In a March 7 statement, the President found the words he needed for a politically comfortable, national and international posture: "What we want are stable oil prices that aren't too high."  On the March 19 edition of the CBS television program, Face the Nation, Richardson resounded Clinton's view.  "We need stable oil prices.  There's too much volatility... $10 a barrel, too low; $30, too high."

George W. Bush raised a salient point that "These are countries (Saudi Arabia, Kuwait and Mexico) with which we should have an enormous amount of leverage... Why can't the Administration get anything done in the diplomatic scene."

Richardson now burns-up jet fuel at a prodigious rate to get OPEC and others to increase production.  He travels back and forth to the Middle East, trying to cajole oil producers into a commitment to increase production.  An OPEC meeting is scheduled for March 27 in Vienna, Austria.  At that meeting, OPEC may decide what coordinated action, if any, it will take in response to Richardson's pleas.

In testimony before the Senate Armed Services Committee on March 9, Richardson stated that "Our hope is there will be (price) stability shortly after (the increased production) moves into the market."  Stability at what price, sir?  Price stability may occur, but it clear it will be at levels yet to come.  The cost of gasoline will remain high until either supply increases or demand decreases.  Neither scenario is likely before the end of the summer driving season.  Therefore, during the peak use period of automobile travel -- the summer -- consumers will pay the highest prices for gasoline.  Delightful.

Any goodwill remaining from the Persian Gulf War has obviously been squandered.  Many Americans believe that a duty is owed to the United States for the cost of that war.  Kuwait opposes raising output quotas.  It argues that prices could slide in the traditionally slow second quarter.  Richardson confirmed that "Kuwait has... been a little reluctant about increasing production."  Indeed.

The hesitancy of Kuwait to increase production has caused many politicians who opposed the Gulf War, reasoning it was a war to protect big oil rather than to insure the sovereignty of the Kuwait, to lie low.  These individuals now cower for cover as their constituents scream bloody murder over the rapid increase in fuel costs.

One may wonder if the failure of the United States to bring humanitarian aid to African countries looms as insolence to the need of these countries for a even handed U.S. approach in the apportionment of foreign aid.  How much better would it have been for humanity if the U.S. had come to the aid of the besieged peoples of Nigeria, Rwanda, Zimbabwe, or Mozambique?  Could our energy crisis been averted by a recognition by Middle East and African nations that our aid is not always accompanied by a demand for a "quid pro quo?"

Whether gas prices are too high or not depends on your political point of view regarding energy use.  The conservationist position is that "high" prices encourage reduced automobile usage with an attendant reduction in air pollution.  Others, more nationalistic in their viewpoint, see the decline of domestic production -- now at its lowest level since 1951 -- caused by the oil price collapse in 1986 as a national disgrace.  America's dependence on foreign oil is at its highest level ever.   Imports have risen from 36% at the time of the Arab Oil Embargo in 1973 to 56%.

Politicians of both parties have called on Clinton to draw from the 750 million barrel Strategic Petroleum Reserve to drive down prices.  Clinton claims, "There's no overnight solution."  Baloney.  A solution has been proposed but is ignored.  Clinton hopes his diplomatic efforts will pay off.  An OPEC agreement to increase production gives the Administration its "win."  Clinton can spin his "rescue scenario" to overcome the legitimate perception of negligence.  Opening the reserve is a tacit admission that he was asleep at the switch.

Opening the Strategic Petroleum Reserve is an appropriate step to make-up for the shortfall of oil.  A 240 percent increase in the cost of crude oil is a crisis that demands action.  We cannot wait for the world to solve our problem.

Politically, the rapid escalation in fuel costs does not bode well for Vice President Gore's race for the White House.  In 15 months, gasoline has risen 64% from its $0.94 level in December 1998.  Household budgets are being adjusted, summer driving is being re-evaluated.  From conservationist viewpoint, this is good.  For Al Gore, the "green" candidate, who is more interested in an unworkable, unfair greenhouse gas treaty (Kyoto Protocol), the crisis spells trouble.  There is no doubt that the higher prices Americans are paying will have a regressive impact on the economy.

In Clinton's March 18 address, he said, "we need to take a longer view."  What a pitiful consolation for the "hardship for many Americans" he acknowledged has taken place.  There has already been a great deal of pain suffered by those dependent on fuel oil for heating.  Heating oil sold nationally at an average price of $0.86 a gallon during the 1998-99 heating system.  It jumped to $1.86 a gallon the week of February 7, 2000 -- a 116 increase.  Now, residents of the Northeast are getting the other barrel of the energy shotgun -- high gas prices.  The West, which relies principally on natural gas for heating, is not spared this time from the escalating price of crude oil.  Interestingly, Nevada and California have some of the highest gas prices in the nation.  It would appear that what the energy companies lose in fuel oil sales to the Western States, they more than make-up in their gasoline sales.  One may wonder what Clinton's "longer view" is, as there is no policy to evaluate.

Because the Clinton Administration has no energy policy, the above observations should be of deep concern if you value your personal safety and economy.  Richardson said on March 13 that electric power outages this summer are likely.  He blamed Congress for not passing legislation to restructure the electric utility industry.  He warned of "more long, hot summers of outages in American cities."  The DOE says the transition to competition has caused some utilities to focus on competing for markets, cutting costs and maximizing prices, instead of assuring that power is kept flowing.  One may wonder if the Administration has any idea whatsoever of the importance to the economy of stable and reliable energy sources.

Are Clinton and Richardson nitwits, dimwits, or just plain dumb?

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