Honest, hard truth about gas/fuel prices.
April 25, 2006 by SwizStick
Filed under Education, Misc Logistics, QuickNews, Supply Chain Management
Pat Cleary over at ShopFloor.org: The Manufacturer’s Blog explains the real reasons behind fuel price increases and summarizes the facts nicely into 3 easy to understand bullet points:
1.) Supply and demand – This is an issue we’ve written about frequently in this space. It is one of nature’s immutable laws. There are two sides to this coin: first and foremost, global demand has soared with the explosive growth in China and India, among other places. However, global supply has not kept up. Here at home, we remain the only country in the world that limits access to its own natural resources. We could tap oil reserves in ANWR and in the Outer Continental Shelf if Members of Congress were really that concerned about gas prices. But apparently they’d rather make speeches.
2.) Uncertainty – In a meeting with NAM officials last year (on an unrelated topic) Treasury Secretary Snow — a PhD economist — made the observation that “the market builds in a premium for uncertainty.” Think about that in the context of the world oil market. One of the biggest sources of oil is the unstable Middle East. Another is Venezuela, with Castro-centric leader Hugo Chavez at the controls. His recent moves have made the already-jittery markets even moreso. This uncertainty is reflected in the world price per barrel of oil. And, however bad it is here, European drivers are still paying more for gasoline than we are.
3.) Refinery capacity – If oil can’t be refined, gasoline can’t be manufactured. Supply shrinks, demand grows, price rises. According to the EIA report, there were three refineries shut down by Hurricane Katrina, and they are only now coming on line. Others deferred maintenance in order to stay operational post-hurricane, but they are now closing in order to perform the necessary maintenance. Most important, we also have not built a refinery in this country in 28 years.
For those of you confused as to why oil and fuel prices continue to fluctuate upwards, here’s why.
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