The spike in the cost of gasoline over the last two weeks has once again put the oil industry, government regulators and speculators under a microscope. What justification this time is being offered for a huge jump?
On one hand, consumers and watchdog groups blame speculators and greedy oil companies and governments too beholden to oil giants to question what appears to be price fixing between conglomerates. Crude for May delivery fell $1.05 to $102.95 US a barrel last Wednesday morning on the New York Mercantile Exchange. A year ago, crude was trading at $104 a barrel. The average in New York state as of the writing of this blog is $4.20 per gallon, in Toronto, it’s $1.41 per litre which translates to $5.36 per gallon.
On the other side, there is talk of scarcity, lack of refining capacity and the need for new pipelines. The oil industry itself also usually tries to explain the summer driving price increase due to the cost of converting from winter to summer fuel, but that doesn’t fly in Canada where fuel specifications don’t change with the seasons. Another reason, we’re told, is that refineries have to switch from diesel to more gasoline, raising prices. That excuse is also getting old to many consumers.
It’s pretty hard to accept these excuses when oil company profits continue to rise, and they still continue to receive subsidies. In 2011, the three biggest U.S. oil companies took home more than $80 billion in profit. President Obama said recently, “When the price of oil goes up, prices at the pump go up, and so do these companies’ profits. Meanwhile, these companies pay a lower tax rate than most other companies on their investments -- partly because we’re giving them billions in tax giveaways every year.”
The blame game and the rhetoric will go on as long as prices continue to rise, but the bottom line is that this spike in prices could have a detrimental effect on the fragile recovery of economies world-wide.
This increase will undoubtedly have an impact on summer vacation driving for consumers, but that is the least of our concerns. It will affect the price of food and all consumer goods because transportation costs are factored into the price. Higher transportation costs will affect the cost of raw materials to manufacturers and delivery from manufacturers. Of course that means higher costs to valve, actuator and control manufacturers. Those costs will get passed on to the end users, refineries, water processing plants, chemical plants and of course power plants. In turn, those costs get handed down again to the consumers.
How much can the already nervous consumer absorb? When does that which is perceived as price gouging translate into more cutbacks on consumer spending, protests and legislative involvement? Last summer we saw the Occupy Movement gaining momentum. It wouldn’t take much for anger and mistrust to turn into something else.
Short term profits by a small circle of speculators and oil companies could have serious consequences for a fragile world economy. That includes the manufacturing sector, and that means all of us in the valve industry.
I’d love to hear what you think the solution might be.