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More Pain At The Pump

With tensions mounting in Iraq has put the nation on notice that the price of gas or should we say pain at the pump many fear that another deja vu scenario of the summer of 2008 will again be upon us. It is a known fact that the price of energy particularly gasoline dictates the price of practically everything else. So it should be no surprise either that what we are seeing today all around the United States are price increases in all consumables. If you have been to the grocery store lately you will come away with an acute case of sticker shock. But, there is one major new factor that is almost completely overlooked which is one of the primary causes why gas prices are rising.

First, we have to remember that since the mid 1970's the United States has been totally focused on the one most important commodity that can either make or break whole economies. Oil, still is one of the worlds most valuable and most sought after energy source. But unlike in the 1970's, today there is no real shortage of oil supplies in America. One would assume that concerns over Persian Gulf oil would translate into higher crude prices because of the interconnected global market. Yet, if the United States is poised to become essentially independent thanks to the new abundance of energy, it still raises the question: Why would gasoline prices keep rising at home?

The saying that supply and demand is the indicator of the cost to consumers doesn't really apply here now. Since the overall demand for gas today in the United States is far less than it was years ago and we have adequate supplies the question is why are the prices everyone pays at the pump continues to rise? This is because American refineries have now become the largest exporters of processed oil products in the world. So, the price we pay at the pump is now increasingly determined by events elsewhere. The United States may no longer be importing as much oil as it had previously, but prices in the U.S. for products like gasoline are now more influenced by the wider global market than in the past.

American interests in Iraq have always been determined by oil.That is why the status of the largest Iraqi refinery has become a factor in determining American domestic gasoline prices. The Baiji refinery in Iraq is some 130 miles north of Baghdad near Tikrit. It produces about 25% of all the gasoline refined in that country. But, the entire product is only for consumption inside Iraq. In the past that would have some modest effect for prices elsewhere. But, today the pricing pressure is much greater. Should this single refinery in Iraq reduce production, it will cause higher prices in the United States as a result of the American position in the gasoline exporting market. In this case, there is no need to export directly to meet Iraqi domestic demand. Instead, the situation is about balance. When prices rise in Iraq, the Iraqis first import gasoline from other countries in the region, and then from broader areas to maintain supply-demand balances. The result is a domino effect that quickly impacts markets that are regularly serviced by American exports. In a global market, this balance pushes prices higher. Welcome to the new world order. Once again, we are reminded that how secure the supply of oil is and how much it will cost are two very different issues. It seems energy independence, a good thing from the standpoint of being less reliant on others, does not necessarily translate into lower prices at the pump.

To really understand how this is all playing out we have to go back to 1974 when the United States economy was crippled by our real first energy crisis. In 1974 most of the media and the public was so focused on the so called atrocity of Watergate this nation was completely blind sided by the Oil Cartel in the Mid East. With over 80% of all our energy needs being imported back then we were dependent on oil imports. Yet, today the United States succumbs to price increases whenever there is any disruption whether or not the actual production of oil is curtailed or not. But in the mid 1970's the actual production was slowed just to inflate the cost per barrel. What ensued was gas rationing {this hasn't been done since World War II} and enforcement of the 55 mph speed limit [this by the way saved over 400,000 lives alone during the 1970's} still the price at the pump jumped considerably.

The United States society has always been mobile. When Henry Ford first produced the automobile the more mobile our society became. Consequently the need for more oil became more paramount. Domestically our oil production peaked some 50 years ago but our demand has kept increasing. This made it necessary so that today the government is spending over 37 Billion tax dollars annually for imported oil just to keep up with our demands. What makes this so compelling is that in 1974 the United States had a real authentic opportunity to develop alternative fuel sources for our automobiles, like Brazil did. We had the technology but still our Auto Industry in conjunction with the major oil companies like Exxon-Mobile either ignored or outright refused to begin designing and manufacturing automobiles using alternative fuel sources or more fuel efficient cars. A prime example of this kind or reaction by both the major Auto Companies and "Big Oil" occurred some 25 yeas earlier with the demise of the Tucker. Today the auto industry is just beginning to emerge from decades of decline. More energy efficient and better quality autos are coming out of Detroit and elsewhere. But still there lies our energy policy that continues to rely on more than 80% of energy consumed in the United States on oil at price this country can no longer afford.

Right now the government can make the pain at the pump much less sever if we implement policies that are already available. We must remember that the price of oil is mostly driven by speculation [fear] not so much as the supply and demand. With over 700 million barrels of oil in our Strategic Petroleum Reserve is one place we have looked to in times of crisis. In only three periods since 1990 has the SPR been taped into to help deflate the cost of gas. In each case though most oil production wasn't affected. But each time the cost of gas rose primarily through speculation the Government released certain amounts of oil just to offset the price increases. This time the Government should announce that it plans to release at random certain amounts of oil from our SPR. This would be of a more psychological maneuver. The main source now of any price increase has to do with speculation in oil stocks not supply and demand.. What must happen now after the first announcement of releasing say, 20 million barrels is another announcement a day latter of another 20 million barrels. This second announcement would further depress oil prices to about a little over $15 per barrel or about 38 cents per gallon at the pump, an immediate impact.

Another major emphasis is to impose Double Margin Requirements for all speculators. If and when imposed this would decrease the speculators ability to gamble with borrowed money which would in turn reduce even further the price another $15 per barrel and another 38 cents per gallon. Just these two factors would drop the price from now abut $3.50 to $2.84 per gallon. To improve gas mileage, ensure supply, and save lives the enforcement of a 55 mph speed limit on all major highways should now be implemented. This not only saves gas it improves car performance and it also saves lives. All of which preserves gas supplies while keeping the demand down which in turn lowers cost so that now another cost reduction occurs at about 30 cents per gallon.

To further reduce the cost at the pump issue a suspension or moratorium on each states gasoline sales tax would have as immediate impact for decreasing the price at the pump. In states like Florida where the tax is about 16 cents per gallon a suspension of the tax when the price jumps to over $3.00 per gallon would go a long way in helping spur economic activity. This would serve two purposes: One, it would encourage the United States Government to help keep the price of gas under $3.00 per gallon so that each state can have tax revenue coming in to help maintain states budgets. Two: It would practically eliminate the need to tap into the SPR except in very extreme circumstances.

These are just a few remedies that will improve economic conditions here in the United States. If the government followed these proposals each American can expect to pay about $2.50 per gallon and be rest assured the price will remain constant. Until this country embarks on an energy policy that guarantees the prices one pays for fuel will be less costly more plentiful while ensuring that this country will never again be dependent on foreign energy sources keeping the cost of fuel at a constant rate under $3.00 per gallon is essential for the whole economy. It is of vital importance that an energy policy like the Pickens Plan not be over looked but be immediately considered for implementation to secure that our economy will not suffer further. With the advent on Solar Gas now being a real alternative the bigger question is how much will this new fuel will cost and what changes are needed to our manufacturing of automobiles to adapt to this new fuel?

The technology is there but human factors always come into play when any type of financial concerns matter. In their zeal to recoup monetary losses like what happened at the BP Horizon which caused so much devastation [ which by the way the Gulf is going to take years if not decades to recover form all the oil that was spilled ] non the less until most of the automobiles are equipped to run with alternative energy sources at stable less costly prices and our electric grid is secured with low cost green energy this country is still very much dependent on oil. The choice should be very clear that until such a time we have implemented the advances in alternative fuel in our transportation and in our electric grid oil is necessary. Sure, a necessary evil, but still necessary.

Once we rid ourselves from the dependency of oil producing countries where in times of uncertainty like what is occurring in the Mid East have always increased the prices every American faces at times when we can least afford to do so the United States will finally pull out of a perpetual cycle of economic depravation.This country can no longer be held hostage by foreign countries. Our failure to implement policies that decreases the pain at the pump and ensures our national security continues to undermine our economic recovery. By stabilizing our electric grid with green energy and a renewed emphasis on alternative fuels sources like Solar Gas will all aid greatly in our total economic revival. One that ensures our stability and security today and for the future..