Image courtesy of suwatpo at FreeDigitalPhotos.net
I’m going to do something today that as far as I can remember I’ve only done once here on CleverDude. I’m going to get all political. But don’t worry fellow money nerds, it has to do with something that we all talk about and are forced to think about almost every day.
Let’s talk about price fixing, monopolies, and the price of oil and gasoline.
The price of oil has shrunk in half over the last year to eighteen months from around $110 dollars a barrel to currently right around $50. The global demand for oil isn’t growing as it once was, and the high output from oil producing countries is resulting in a massive stockpile of oil.
It used to be that when oil prices dropped, OPEC countries would reduce their output, artificially reducing supply and thus causing the price to go up. It also astounds me that every time oil prices fall significantly, refining plants have to go offline for maintenance. Which then leads to an increase in gasoline prices because even though there may be plenty of oil, gasoline is in short supply causing the price to go up.
Where I come from, this is called collusion and price fixing which is illegal in the US. But somehow in the global stage this is acceptable behavior.
High gasoline prices take money out of the pocket of everyday consumers. If we’re spending our money on gasoline, we won’t be spending on other industries to help our economy grow. It seems to me that it is in the best interest of the every day consumer, and thus our economy as a whole, to have low gasoline prices. To have low gasoline prices, we need low oil prices, and the shortest path to having lower oil prices is to break OPEC’s price fixing ability.
To completely break OPEC’s price fixing capability we need to increase global share of oil produced by non-OPEC countries.
One way to help this would be to build the Keystone XL pipeline, which some in United States have largely opposed, and quite frankly I don’t understand why. Here are my thoughts on the subject:
It’s About The Jobs
The building of the pipeline will create thousands of new, high paying jobs. The opposing view will say they are temporary and will disappear as soon as the pipeline is built. That’s true, but good paying jobs even if temporary, are still good paying jobs. Plus, the workers will build skills and experience that may help them get their next job. It’s kind of like the solar panel initiative our President recently put together for veterans. Those are also temporary jobs which have the goal of providing short term employment, but skill building to help the vets as they go forward. One big difference here though, is that the pipeline jobs will be funded by the oil companies. The solar panel jobs are funded by us, the taxpayers.
Where Does the Oil Go?
The argument against the pipeline is that the oil from Canada would go to the Gulf, be refined, and be shipped around the world. Not one drop would be used in the US, and thus would not affect the price of gasoline here. I find that theory to be questionable because any increase in non-OPEC oil reduces OPEC’s ability to fix prices. An increase in non-OPEC oil is a step in the direction of having oil costs truly reflect the supply and demand curve, and not what OPEC makes the curve the look like. Imagine a world where the price of oil and gasoline doesn’t spike overnight just because some guy in the middle east had indigestion from last night’s meal.
This is the most tricky subject. Oil is sticky and messy and causes quite an environmental catastrophe when it spills. Fortunately, oil spill catastrophes are rare. Is the occasional accident a reason not to help the global economy? Is an occasional car accident a reason to stop building automobiles? Opponents would have you believe that the Keystone XL pipeline is the first and only pipeline in the US. The fact of the matter is, Keystone XL would simply be a new piece in a large network of thousands of miles of pipeline that already exist today. When was the last time you heard about a pipeline disaster within the US?
Honestly, I believe we should be sinking huge amounts of money into alternative fuel development and get ourselves completely off the horse of using fossil fuels. One day our oil supply will completely dry up, and we will have no choice. Until then, it’s in our best interests to make ourselves less and less dependent upon oil from the most unstable region of the word; The Middle East.
What do you think, Clever Friends? Would you support building the Keystone XL pipeline if it meant more affordable gasoline, or are the potential impacts too great? Before you comment, please remember to remain respectful. I love a great discussion, but let’s keep it classy.
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