The shop around the corner raised the price of sandwiches by a quarter this week. Although the housing meltdown is raising concerns that it may take the whole American economy down with it, prices are going up and the reason is the cost of oil.
Oil, and therefore gas, prices remain at near-record levels. A story in last Sunday’s New York Times blamed a shortage of refinery capacity. Hurricane Katrina knocked some refinery capacity off-line in 2005, other refineries delayed maintenance to keep the gas flowing, but now that delayed maintenance is taking refineries off line. That, plus a series of unfortunate lightning strikes, the Times says, is causing our supplies to lag behind demand. The Times article takes pains to note that this is not price gouging by the oil companies. Heavens, no. Perish the thought.
We’re all sure this is not price gouging by the oil companies, but it should be noted that using this tactic – taking power plants off line for maintenance – is exactly what the electric companies, with the connivance of Enron, did in 2001 causing those price spikes and rolling blackouts in California. No, these refinery downtimes are because those unselfish bosses at the oil companies kept their plants going too long for the public good; they’re “refiners who love too much.” Look for an upcoming segment on Oprah.
Of course, if this were price gouging, we can rest assured it would be caught by the eagle-eyed regulators of George W. Bush’s administration, who’ve been so good at holding corporations accountable.
Even if we accept the oil executives’ protestations of innocence, what does it say about them that they have allowed our national oil-refining infrastructure to grow so feeble? How can corporate directors justify giving these people billions in salaries and bonuses each year? What does it tell foreign or domestic terrorists about how easily our economy can be crippled?
Last week I was flying and like so many others this summer, I was delayed. What should have been a six-hour trip took 24 hours. A few weeks earlier, a friend’s family took four days to get from Vermont to California. They could have driven there quicker. That too is about oil.
Surveys may say drivers are willing to pay up to $4 a gallon for gas, but that doesn’t hold down the cost of sandwiches or airline tickets. Airlines are losing their shirts over the cost of fuel, but they’re doing everything they can – goodbye, tiny bag of peanuts – to keep ticket prices down. Flying is still in many cases cheaper than driving, but the airlines, having cut unprofitable routes and redundant flights, are running at over 90 percent capacity. If your flight is delayed by weather and you miss your connecting flight, as I did, the ticket agents have a difficult time finding an open seat. If you’re flying from a small airport (like Burlington) or are traveling with a family of four, then it may take you four days to get to California, as it did my friends.
Inconvenient as air travel has become, if the airlines have to start raising ticket prices (they will if this keeps up much longer), then they will be faced with fewer travelers and costs they can’t cut any more. Flying a half-empty plane is much less profitable than flying a full one.
The New York Times says this crisis is about refining, but the federal government’s Energy Information Agency recently posted global oil supply and demand statistics for the first three months of 2007. We as a planet used an average of 1.4 million gallons more oil than we pumped in the first quarter. That in itself is neither cause for panic nor explains high gas prices, but it is a concern that demand outstrips supply more frequently than it once did.
If supply and refining bottlenecks are playing havoc with the price of sandwiches and airline seats, what of all that plastic crap made in Asia and sold at the big box store down at the mall?
Like the airlines, those manufacturers want to keep their consumer prices down (the only reason we buy that stuff is because it’s cheap), but not only has the price of hauling the gewgaws halfway across the world gone up, but the gewgaws themselves are made of oil-based resins, so the price of raw materials has gone up.
If a sneaker maker faces an increase in both material and transportation costs then the only things to cut are profits and/or wages. Cut profits and your stock price takes a hit, so…. sorry, already-underpaid gluers of sneakers.
Asian pieceworkers and travelers and airline employees are the contemporary victims of oil. They join the Katrina survivors still sweltering away in their formaldehyde-emitting FEMA trailers and the flood and wildfire victims on almost every continent this summer. We will all be victims of oil sooner or later, it’s just a question of when.
© Mark Floegel, 2007
(EIA oil data: http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html. Scroll to the bottom of the page and under the heading “International Data” click on the Excel spread sheet entitled: “World Oil Balance.”)