OUR VIEW ON THE PRICE OF OIL

March 6, 2012 by
Filed under: The Right Answer 

We at The American Conservative Center for Public Transportation believe that our dependence on foreign oil is a continuing major risk that imperils our national security and ultimately our economy. Transit, especially rail transit, can provide the mobility alternatives that we need to help reduce our reliance on foreign oil. So how do we respond when (some) conservatives lament that we have reduced our dependence on foreign oil over the last five years, yet our oil and gasoline prices remain high?

Yes, we have reduced our use of foreign oil. It still remains, however, that we import, by the latest available figures (2010), 49 percent of our oil needs from foreign sources. While Canada remains our biggest source (and a politically stable one) with a 24.4% share, the Middle East with 20.6% continues as a major source of the foreign oil that we import. As long as we consume 25% of the world’s production, and possess little more than 2% of the world’s proven oil reserves, we clearly remain at considerable risk.

Now back to those rising gasoline prices. Determining the price of a barrel of oil is a function of the world market, whether we like it or not. When we go to the world market to procure our oil, we are competing with a number of other countries around the world for this finite commodity. This includes China, India and other maturing, dynamic economies. Granted, there is a multi-tiered market pricing system for oil. Oil originating in the North Sea is traded as Brent Crude on the London market. Oil production from other parts of Europe, Africa and the Middle East shipped west takes the Brent Crude benchmark into account. This is also true for OPEC countries which use the OPEC basket benchmark. About two-thirds of oil produced for world markets uses the Brent Crude benchmark.

Oil produced in North America uses the West Texas Intermediate (WTI) benchmark. The disparity between Brent and WTI prices reflect transportation and risk factors (i.e., Iran and U.S. ‘saber rattling’). Right now, Brent Crude is priced about $15 higher than WTI and, for the most part, this reflects the current state of affairs in the Middle East. Both Brent and WTI oil are priced on the world market; hence when Iran makes threatening noises to close the Gulf of Hormuz (through which 20% of global oil consumption flows), or Israel hints at attacking Iran’s nuclear facilities, gas prices climb in the U.S.

While we have made strides in extracting “hard oil” and gas deposits (through hydraulic fracturing, popularly known as “fracking”) in this country, the fact is no amount of domestic drilling (Alaska, off-shore, etc.) is going to make an appreciable dent in our dependence on foreign oil. While we have increased domestic oil production by 9% since 2008, only a combination of measures will dramatically reduce foreign oil imports. Expanding public transportation alternatives (especially rail) to the automobile, improving CAFÉ standards, instituting rational land use policies through dual codes (sprawl and Traditional Neighborhood Design (TND)), and, yes, greater domestic production are the main solutions. We at The Center think that we might have a win-win situation here as expanded use of rail based transit solutions reduces the need for foreign oil while fostering economic development and where dual codes are in place, more efficient market-driven land use patterns.

So the next time you think about the price of a gallon of gasoline, reflect on our over-reliance on oil-based conveyances. The automobile consumes 50% of daily oil usage in this country. Don’t blame the President (Bush or Obama) when prices edge up. It’s like howling at the moon; it might feel good but, frankly, there’s no effect. Democrats did it when Mr. Bush was President and Republicans are doing it now to our current President. Dramatic oil price increases reflect world conditions. Thus, our over-sensitivity to world events is a direct result of our addiction to oil.

Oil has us literally over the barrel. If this situation is to change, we will all need to recognize that our present course is not sustainable. All of our institutions are geared to an era that was designed for a different set of circumstances that mainly relied on cheap domestic oil. That day is over. We need to realize it and embrace a future that recognizes that fact. That future must include public transportation, especially rail. Delay simply pushes future prosperity and enhanced mobility that much further from our grasp.

Glen Bottoms serves as Executive Director of The American Conservative Center for Public Transportation

Comments

One Response to “OUR VIEW ON THE PRICE OF OIL”

  1. libertarian jerry says:

    One of the main reasons for the increase in the price of oil,which you don’t touch on,is the loss of value of the American Dollar caused by its over printing. In other words,the price of oil hasn’t gone up but the value and the purchasing power of the American Dollar has declined. Therefore it takes more dollars to buy the same amount of crude. In fact it has declined so much that many oil producing countries are demanding payment in either Euros or Gold. Eventually the Dollar will be printed into worthlessness. A sad state of affairs.

Leave a Reply