When will high energy prices and inflation come down?

June 12, 2022

Larry Bittner

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.


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Jorge Estrada

Cheap fuel will NEVER, NEVER, NEVER happen again. Buy a Vespa and get accustom to life elsewhere while staying home. This is not political or emotional, just do the math.


Robert1

When we reelect a new president, Republican, then things will change for the good, the destruction by the democrats will take years to unwind.


Zoiebowie

What are you smoking? Things will never get better. They never have. And never will.


Michael A.

The global price of oil is Globalists being caught with their collective pants down. “We can trust old Vlad” they said in unison as their heads nod up and down.


MrYan

Saudi oil is a state run conglomerate. It is run strategically not necessarily for day to day profit.

They can pull, sweet crude – not oil shale, out of the ground at about 8 per barrel. American producers need $55-$65 or more per barrel to break even. It is basic economics. Fracking ain’t cheap or easy. The Saudi’s over produced on purpose to drive out American operators. We capped wells as a result of the plummeting profit. Which was; 100% business decision and not a government function.

We lost the oil war and didn’t even know it.

We actually thought we had a hand in that cheap gas. We didn’t. Our oil was always expensive by comparison.


mullyman

The US has always been the sucker of the world. Saudi’s rip us off in oil price and we still give them other free money way to go US


mazin

1 – “The answer to the question of when gasoline prices will decrease is simple … when the domestic oil supply exceeds demand.”

If the USA was a separate market from the world, but USA sells and buys on the world market. So our prices reflect the global demand supply imbalance.

This imbalance is due to the world’s largest oil exporter, Russia with total 2021 production of 10.5 million barrels per day, exporting 4.7 million bpd of crude daily to countries around the world, essentially going offline (with the exception of Russian Far Eastern oil of 1.6 million bpd to East Asia). As a result we have a supply shock of the loss of 3.1 exported million bpd per day. This supply loss is unlikely to return any time soon with the 3.1 million bdp either going through a pipeline system in a war zone; the Black Sea port of Novorossiysk (insure that); and labor being unwilling to offload the last alternative, Russian petroleum shipped from the Baltic through the Gulf of Finland.

2 – “We give Putin the money to wage war on Ukraine.”

This is true. I would rather see North American production, which is cleaner and safer, than for us to send money to dictators, which from any viewpoint is a mistake.

It’s a credit to the domestic oil industry that fuel prices are so low, but refinery capacity has to be a major bottleneck, since it is being asked to refined so much more.

Interim solution, drive less, drive gently. We should be doing this anyway.


kevin rise

https://youtu.be/GSUQhfYv3wc

Here’s a great YouTube channel with facts debunking all of Elon’s Psychopathic BS, lies, corruption and pure insanity that should end him in prison forever. He’s a thief, a liar and scum of the earth. Everything he says is literally BS, lie and a con Like Edison. And is risking many people’s lives, savings etc to fuel his greed. No dividend on his Bogus stocks either because he’s psycho.


kevin rise

You mentioned Elon Musk; who’s a perpetual Liar, steals people’s ideas and claims them as his own, is NOT the founder of Tesla, again, a narcissist, a thief of others intellectual property; nuerolink, which is being dismantled for abuses as we speak, and is facing hundreds if thousands of lawsuits and is a genuine idiot; solar city going bankrupt, the boring company bankrupt, hyper loop failed, starlink is failing, starship is failing, Tesla semi failed, Tesla’s are toxic vehicles made from lithium mines for the Rich built by the poor. Private oil is the problem, and we need to model Alaska and make it civilian owned, done. The oil crisis is due to oil being privately owned by a bunch of murderous psychopaths and insane people and their lobbyists. Just the other day Private oil races to the bottom, now they’re price hiking. Private enterprise owning everyone’s oil is like someone owning water or air or power or roads or a military or a school. The free market based off of imperialism, capitalism and loose restrictions are why earth is almost dead. But If people like having resources stolen, go for it. I have data to prove everything I stated upon request. Fake news here. End OPEC and Private oil, build public nuclear and energy vs PGE crap and failings like Texas energy grid, problems solved. Thank you author for driving our vets though.


Everybody_Lies

I’m very well aware of everything you’ve laid out here Mr. Bittner, thank you for a no-nonsense and concise article. However rational arguments really aren’t capable of convincing too many more people about the real problems behind the oil supply and the resulting economic crisis. Anyone who understands the real economic facts already believes as you do. Now, how to convince millions of aging Baby Boomers who want to “leave a legacy” by telling their grandchildren that their activism and politics “saved the world,” (which they’d like to see done in the next 10-20 years). How do we convince those without any other God, who have adopted as their religion: the causes of “green” this, that, and the other thing? Most major religions give you a reward of either eternal life or the survival of an Apocolypse. How can you take away the promises of a perfectly clean environment for future generations, and/or the impending doom of “climate change” from the environmental zealots?


shelworth

Of course they will, maybe not in our lifetimes but…..