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Charles Jaco has written opinion and commentary pieces for dozens of magazines and newspapers. Each week, read and comment on a fresh on-line version. The discussion page enables you to share your view points world wide. If you would like to make a comment go to the " Join the discussion" link below. If you would like to view past editorials visit the Editorial Archive.
Editorial: 3/25/2000 I owe my career to OPEC. I graduated from college late, thanks to a Southeast
Asian side trip, and finally snagged an English degree in 1973. That was just in time
for the first OPEC oil embargo, which sent pump prices to an astronomical fifty
cents a gallon briefly. Jobs for disaffected humanists were scarce thanks to the
ensuing recession, so I ended up paying off my college loans and saving a tidy sum
by going to work for U.S. Steel. It was the most overeducated mill crew on record:
two PhD's, two doctoral candidates, one MA, two MS's, and a half dozen Bachelor of Arts
in fields no one cared about--English, philosophy, sociology.
I began writing articles on steelworkers union politics for the Chicago Tribune
to keep boredom at bay. That led to gigs for Esquire, Rolling Stone, the three other
Chicago dailys, and eventually, full-time journalism. The laws of unintended
consequences led me to most fufilling career imaginable, all thanks to America's thirst
for oil and a few grumpy sheiks.
Maybe there's a silver lining like that hidden inside the current oil crunch.
After all, the first oil cutbacks in the '70's led to a complete re-tooling of
America's auto industry. In half a decade, Detroit went from making sloppy iron
pushed by eight cylinders to high-quality front-wheel drive machines pulled by
four-bangers or efficient sixes. Honda, for example, has just introduced the first
mass-produced gasoline/electric hybrid car that gets 70 mpg on the interstate while
being able to cruise well above the speed limit.
Meanwhile, we should turn this into an opportunity and stop yawping about those
evil OPECrs. And we need to get about it while we're being stung by resurgent
inflation directly tied to oil prices. Despite the rosy forecasts of a lot of
macro-economic types, higher energy prices are hitting you in the wallet at more
locations than the gas pump.
Independent truckers who pay for their own diesel are already adding five to
eight per-cent surcharges on the loads they deliver. FedEx is adding a buck to the
price of some overnight packages. Airlines are raising fares because of more
expensive Jet-A fuel. The only reason the figures haven't show up much in overall
inflation stats let is because of high-tech deflation. Consumer goods are
becoming slightly more expensive, while the cost of high technology devices from
cell phones to Palm Pilots is edging down, so they balance each other out.
This is not an OPEC problem. It's a free market problem, and demands a free
market solution. Remember, this all started three years ago when Mexican Oil
Minister Luis Tellez, under pressure to bring in more revenue, contacted the oil
ministers of Saudi Arabia and Venezuela and suggested a meeting. In March of
1998, the 13 OPEC nations, plus non-OPEC members Norway and Mexico, met in
Saudi and agreed on staged production cutbacks.
The final cutback took effect in March of last year. But gasoline prices here
dipped instead of rising, making the driving summer of 1999 the cheaptest on
record. Why? Supply and demand.
First, Asia's economies were still in the dumps. Japan and Thailand and Taiwan
weren't bidding against the U.S. for oil much in the world's markets. We also had the
latest in a series of abnormally warm winters in the eastern third of the U.S. That
meant refining capacity that normally produced home heating oil switched to
gasoline. Fast forward to now. Asia has recovered nicely, and they're eagerly
bidding against us for the oil needed to fuel their own resurgent economies. The
U.S. east finally got a cold winter, and home heating oil was in demand. Prices were
going to rise anyway. The OPEC cuts just nudged them along.
The other myth we need to confront is that we're the innocent victims of all
this. Back when Nixon was president, we imported a bit less than one-third of all
our oil. Now 55 per-cent is imported, ten and-a-half million barrels every day.
Again, supply and demand. The American economy has boomed for seven years now,
and expansion means fossil fuels.
We're also not as energy efficient as we believe. Sure, even pick-up V-Eight's
get 20 mile to the gallon these days. But over 40 per-cent of all the money spent
on auto purchases last year was spent on SUV's, lumbering dinosaurs that get
fuel mileage straight out of 1979.
We're also not exploring for oil as much as we could, but that has more to do
with market forces than alleged enviornmental radicals who're the favorite whipping
boys of talk radio know-nothings. Take, for example, the oil fields of central
and southern Illinois, where small pumps dot the landscape like herds of cattle.
It costs around 16 dollars a barrel to pump it out of the ground. Last year,
Land of Lincoln wildcatters lost seven dollars for every barrel of oil they produced.
In fact, prices have been so low that most oil companies have flat out stopped
exploring for new fields in the U.S. More domestic oil exploration will happen,
but only when prices stabilize around where they are now.
Another Internet-era myth os that we export around half of the oil currently
being pumped in Alaska. The Alaska Oil pipeline shoves around a million barrels a
day toward the Lower 48. 70,000 barrels of that go to Asia, seven per-cent of
the total.
Oil prices are already edging down on the world markets. Saudi Arabia is
already producing several hundred thousand barrels a day more than it's supposed to
under the OPEC agreement. But even though OPEC controls 40 per-cent of the
world's oil suppy, getting their pumps running again wouldn't cut the price of
gasoline much, at least not for six months or so.
The United States should re-double its' conservation efforts, trying to reduce
the demand side. The supply, though, will have to wait until oil prices stabilize
at a higher level than consumers would like. Only then will it make economic
sense for oil drillers to start producing more domestic oil.
If we're really worried about energy independence, we should be glad oil prices
have gone up. It reminds each of us exactly how much we drive. It also gives
companies an incentive to dust off their drilling rigs. All of this may be a
silver lining, but silver is never cheap.
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