Gyroscope

A newsletter for those unmoved by spin.
No. 32, March 15, 2004

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Why have gasoline prices gone up so much?

Articles in several locations have suggested a set of plausible reasons. OPEC has tried to maintain a cut in production with the aim of raising prices. While it is common in U.S. media to make OPEC the constant villain of the piece, this habit has obscured a recent change in their objectives. For years they have sought to keep oil prices in the $25 to $30 range, not always successfully. It wasn't true they have tried to maximize the price. They understood that dramatic price hikes would bring down both political retribution and trigger conservation and exploration efforts that would ultimately lower their profits.

But recently, they have tried to raise prices above that level. Why? An oil industry analyst on the PBS News Hour suggested recently that the dollar exchange rate is a factor. The falling dollar makes US imports more expensive but the effect on oil imports is more indirect. He suggested that since much of OPEC's oil is sold in dollars, the fall of the dollar has hit their revenues and they are trying to compensate by raising their target price.

Domestic issues in the US market are also factors. Demand for oil continues to increase and both refineries and tanker fleets are running at near capacity. Fuel formulations are more complex now and there are regional fuel formulations for gasoline as well. All this makes the market more susceptible to spot outages with the consequent spikes of prices.

Oil companies are also suffering destabilizing issues. Two companies have recently been forced to make significant downward revisions in their estimates of proven reserves and there are allegations by some that more than innocent mistakes were involved in the inflated reserve estimates. The Caspian basin in Central Asia continues to be turbulent and expensive for oil companies who remain convinced that this is the next big oil field.

But we also have to look to our own behaviors. After the first set of oil price shocks in the 70s, American industry began a remarkable set of improvements in energy efficiency. "From 1977 to 1985 … America's GDP rose by 27% but its oil use dropped by 17%" reports the Economist on Oct. 25 of last year. This was driven both by the rising prices of fuel and government policy. It's a great success story: the environment benefited, our national security was enhanced, jobs were created, new technologies developed. Everyone won. But in the last decade the progress, particularly in auto fuel efficiency has been reversed, with the average fuel efficiency actually declining of late.

Supply and demand. It still drives prices.

"Hard Times for Hard News: A clinical Look at U.S. Foreign Coverage" by John F. Stacks in the current issue of World Policy Journal is worth some extended excerpts:

Only 4 Americans in 10 read a daily paper, down from 6 in 10 a decade ago.

Even after Sept. 11th, only 21% of Americans say they follow international news very closely.

"the European edition [of Time] dated January 20, 2003, carried a dramatic cover picture of a burning American flag and the cover line "Blaming America: With War in Iraq Looming, Anti-U.S. Sentiment Is Spreading Across Europe." The cover of the domestic edition of the magazine featured an attractive woman in a yoga position with the cover line "How Your Mind Can Heal Your Body." The U.S. edition was obviously a long-planned special feature that attracted a great number of advertising pages, mostly from drug companies and other purveyors of health products."

The circulation of the Economist in the U.S. is 429,000, up 82% from ten years ago. The New York Times sells a million papers across the U.S. and the circulation of the Financial Times of London is 130,000 in the U.S. Stacks sites these figures to argue that the fraction of the U.S. population interested in international news is no longer getting its news from mainstream mass organizations.

Coverage of the world in U.S. media was terrible before WWII, but improved dramatically during and after that time as the U.S. population became more traveled and globally aware. This trend has reversed in the last ten to twenty years.

Strobe Talbott, a former Time Magazine editor who became deputy secretary of state in the Clinton administration ... "I have often remarked," he said," that one of the big secrets of government is that even after you have gotten all the clearances and codes for classified information, the stuff is often not as good as what one read in the Financial Times the week before. The intelligence is ‘sexed up’ because they go to such trouble to collect it, and it is not very well presented. It is only useful at the margins of a particular problem. The policymaker’s view of the world is of a piece with what the intelligent public knows."

Stacks: "It is no surprise that public support for the war is declining rapidly. Whatever public consent was present before the invasion was based on disinformation, ignorance, and the fear of future terrorism. The Bush administration bears a large part of the responsibility for misleading the public. But the press and the public too must shoulder some of the blame."

Prime Minister's Questions, a half-hour TV show from the British parliament is one of the most entertaining and provocative shows available. Each Wednesday Tony Blair stands at the dispatch box and takes questions from other members of parliament. He gets softball questions from some of his own members and rips from the opposition.

It is conducted with style and wit. The leader of the Liberal Democrats arose some months ago and asked "Granting the Prime Minister the shambolic state of the railways when he took office, can the right honorable gentleman now explain to this house how, after several years of his administration, the railways continue to descend into chaos?" Try to imagine a U.S. politician saying something of that complexity in an unscripted encounter. Try to imagine Bush understanding it.

Of course there are low blows and spin, but notice the "granting the Prime Minister" clause of that question, some sense of fair play still does exist, despite the growling and rude noises from the back benches.

It's entertaining in its back and forth, but what is most compelling is how it functions as a mechanism of accountability that the imperial U.S. president tries to avoid. Blair is good at giving dodgy answers when it suits him, but he is exposed to direct, brutal questioning from the opposition leaders and rank and file on all sides. Nothing quite like it exists in the American political system where Presidents seldom appear before Congress. Instructive now while Bush tries hard to avoid answering questions in private to a commission investigating 9/11.