Oil and the Joys of the Market Economy

January 30, 2005 – Vol.9 No.45

OIL, AND THE JOYS OF THE MARKET ECONOMY.

Record high prices for crude oil in 2004 pinched driver’s wallets worldwide - a trend that continues in 2005. High jet fuel costs are steadily pushing financially shaky airlines near the tailspin of bankruptcy and liquidation. Try buying a petrochemical-based product like a gallon of paint. It’s noticeably higher now than last year at this time.

All are suffering. Except Big Oil. Both Shell and ExxonMobil posted record profits for 2004. (Shell $18 billion or so, ExxonMobil $25 billion) BP is said be ready to post record profits too.

Isn't capitalism grand? Aren’t market economics wonderful? Many suffer while few prosper.

The problem is this. There may not be a monopoly by company in the oil sector, but there is a monopoly in transportation fuels.

Henry Ford apparently once said about the choice of color for the Model T, “Let them have any color they want as long as it’s black.”

For the most part, drivers can put any fuel they want into their cars as long as it’s gasoline.

Consumers of crude oil-based fuels - which includes businesses, industry and government - have no viable choice. Unlike many products that people buy - and can thus control prices - there are only two real choices for vehicles, gas or diesel.

In economies like the U.S., transportation is everything. We’ve essentially relied on one fuel to run it. And its price is out of the hands of consumers who, in a market economy, are supposed to control prices.

To make matters worse - no one is really sure how much crude is left in the ground. There’s no dipstick, no fuel gauge on oil wells.

Right now the fate of the future of the U.S. economy, and the world’s economies, relies on something no one can accurately measure.

While both Shell and ExxonMobil boasted of profits, neither bragged about new major finds. Production of liquids (as they call oil-based products) went up a bit or remained flat. Shell once again reduced its estimates of known reserves.

Foolishly, without a major international push towards alternatives to petroleum - or least strict conservation - the world is growing ever more dependent on one resource for its future.

Watch how fast China, and then India, suck up the world’s oil supplies.

And, while Big Oil makes Big Profits, some scientists now think that the West Antarctic Ice Sheet, once thought to be safe from collapse for a century or more, may begin to disintegrate sooner.

They don’t know when, but global warming from the burning of fossil fuels - that account for those profits - is taking its toll on Antarctica’s ice pack.

A total disintegration of the Sheet would raise sea levels globally by at least 5 meters (16 feet).

Visit Shell at http://www.shell.com/ , ExxonMobil at http://www.exxonmobil.com/ .