When will high energy prices and inflation come down?

June 12, 2022

OPINION by LARRY BITTNER

If you ask most politicians when gasoline prices and inflation will come down, do not expect a clear answer.

I started my career with Atlantic Richfield Petroleum Company (ARCO) in 1971, experiencing firsthand, the most tumultuous decade of gasoline shortages and price increases in history. From 1971 to 1981, crude prices increased  from $3 a barrel to $12 abarrel. Average retail gasoline prices increased from $.36 to $1.31.

For those old enough to remember the long lines to purchase gasoline in 1973, it is basic economics that when demand exceeds supply, prices will increase.

Before 2019-2020, the last time the United States was oil independent was in 1952. After World War II, the U.S. economy rapidly grew, as did the demand for crude oil and gasoline. With world crude prices below $3 a barrel, importing oil was cheaper than producing it domestically. By 1970, more than 50% of crude oil was imported, 70% from OPEC.

Demonstrating the negative impact of the government interfering with the free marketplace, in 1969, a domestic price ceiling was mandated for domestic oil production, further shifting from domestic independence to dependence on foreign oil.

The first oil crisis began in Oct. 1973 when the Organization of Arab Petroleum Exporting Countries (OPEC), led by Saudi Arabia, proclaimed an oil embargo. The embargo targeted nations that had supported Israel during the Yom Kippur War. The second oil crisis in 1979 resulted from the Iranian revolution and hostage crisis.

Before the 1973 embargo, retail gasoline margins at major oil company dealer stations were about 8¢ a gallon. At the peak of the shortage, many gasoline retailers increased their margin to 30¢. It should be understood that the 1890 Sherman Act prohibits vertical price fixing; therefore, major oil companies cannot set retail margins/prices for their dealers.

In Jimmy Carter’s wisdom, he mandated a maximum retail margin of 18¢. As supply normalized, independent gasoline retailers increased market share by reducing margins. After that, major oil company retailers followed.

By 1980, due to shortages and price increases, the unemployment rate rose to 10%, the inflation rate was 11%, and interest rates peaked at 18%.

It is difficult to think of a product that is not either made from oil or used to manufacture and distribute. Even the mask you wore during COVID was made from oil. High oil prices have a negative impact on retailers, the auto industry, public transportation, grocers, employees’ raises, new jobs, unemployment, and the economy overall. High oil prices cause chaos.

History helps us understand the importance of oil (energy) to a prosperous economy. Jimmy Carter was criticized for managing the oil crisis; in Carter’s defense, he did not create the shortage, but reacted to a shortage forced upon him.

As a result of brilliant people in the oil industry creating methods to extract oil, from 2000  to 2020, domestic oil production continued to increase. In 2019-2020 for the first time since Truman was president in 1952, the US became a net exporter of oil/gas.

From 1970 to 2022, the world population has more than doubled from 3.7 billion to 7.9 billion. Everyone should agree that the impact of world population growth demands innovations to protect the planet from human impact. The United States has done an excellent job reducing emissions, but the problem is worldwide.

The United States cannot save the planet alone.

It is not possible to leapfrog technology. Electric cars may be part of the solution, but windmills and solar panels will not produce enough electricity to power cars, trucks, and tractors. Currently, the only technology to produce clean electricity is nuclear. New nuclear production technology for producing electricity is safe and efficient.

The current rise in gasoline prices along with inflation is a self-inflicted wound created by government interference with the marketplace. Government obstacles now have the United States again importing oil. Shockingly, we have been importing oil from Russia, giving Putin the money to wage war on Ukraine.

The answer to the question of when gasoline prices will decrease is simple. They will decrease when the domestic oil supply exceeds demand. They will decrease when government helps rather than hinders domestic oil production.

Except for France, which has developed sufficient nuclear power plants, European politicians have given Putin control over their energy and economy. The United States does not have to rely on the Middle East or Putin for oil. The United States has all the oil necessary for a prosperous economy driven by cheap energy.

Lee Iacocca famously said, “I hire people brighter than me and then I get out of their way.” It is time for the government to get out of the way. Let Americans do what free people do best. Think about what your phone did in 2000 and what it does today.

We have Americans like Elon Musk with the vision to provide new clean, safe energy sources that will drive prosperity for the United States and the world.

Let’s get out of their way!

Larry Bittner retired to Avila Beach in 2000, Since then, he has served on several community boards and volunteers as a driver for the Veteran’s clinic.