[Vision2020] Conserve precious Oil

[B.C. Strand]

The reason for the $50/barrel oil prices right now is not because of 
limited crude oil supply or competition with third world countries.. A 
large portion of the price is a “fear factor” that significant amounts 
of crude from the Middle East MAY be interrupted. It has been estimated 
that 40% of the present price ($20/barrel) is due to this.

Over the past two years, the US has been increasing its strategic 
reserves to record levels. And until Hurricane Ivan interrupted 
shipments, active crude oil inventories were well within seasonal norms. 
So in reality, despite decreasing domestic production of oil, the US has 
had higher available crude oil (both active inventories and strategic 
reserve) than normal.

The price of gas has been driven by four factors:

- Price of oil (driven by the "fear factor")
- Unexpected increase in US consumption starting in February (some 
people point at a warmer than usual 2003-2004 winter, so people started 
taking car trips/vacations earlier. Others point to an improvement in 
the US economy).
- Limited refinery capacity – the present US refinery capacity is darn 
near maxed out.
- New environmental regulations in California and New York that require 
a specialized summer blend. This limits imports (they have to import 
blending components rather than finished product). This puts more strain 
on the domestic refineries.

Gas inventories were at incredibly low levels this spring and summer. 
The US refineries ran at record high production rates to get gas to the 
market this year. They “caught up” in the late summer so we didn’t get 
nailed with high Labor Day prices.

The problem is, normally the refineries start switching over to heating 
oil and propane production in mid summer and this has NOT happened. A 
portion of the propane has been re-stocked through record levels of 
propane imports. However, if it is a cold, hard winter in the east, 
count on propane and heating oil prices to go through the roof.
If we are getting nailed by development in other countries (primary 
China – same as they are affecting the steel industry) it is that they 
are sucking up refined products (gas, propane, etc…).

Bottom line is that it is not presently the supply of oil that is the 
problem for gas prices. It is:

- Fear of losing oil imports
- Insufficient refining capacity in the US
- Increased domestic consumption of gas

If there is any single reason I consider voting Democrat this year is 
because the war in Iraq is largely responsible for that "fear factor" 
affecting oil prices. If there is a reason to vote Republican, it is 
because there is a better chance they will give tax breaks to putting in 
new refinery capacity. If there another reason to vote Democrat (etc, 
etc, etc…). But regardless of which candidate gets elected, unemployment 
tends to correlate with gas prices with a 8-12 month lag. January-May 
2005 could be really suckey for the job market.

Having said that, it won’t be long until we will be truly fighting for 
oil resources with China and other quickly developing nations. I’m 
hoping that we see the cottonwood plantations in the Columbia basin be 
used for bio-production of fuels (ala Germany in WWII). But this takes a 
strategic plan for dealing with energy rather than the tactical plans we 
have been dealing with. A strategic plan means monetary investment. I 
don't see either presidential candidate addressing this. Maybe we will 
see this in a later debate.

Bill Strand