LETTERS TO THE EDITOR

Price Of Gas

Recently, your columnists have combined to blame American environmentalists for the run-up in the price of oil. If we got rid of all the environmental restrictions, they assert, we could develop "our own oil," we wouldn't have to put up with OPEC and we could return to the days of happy motoring.

Is this true? Well, no.

Four things determine the price of oil. The first is the cost of production. The price of oil has to be at least as high as the cost of producing the most expensive oil (currently around $70 per barrel). Otherwise, the expensive oil won't be produced.

Each year, the world loses nearly 4 million barrels per day of existing oil production. This has to be replaced by discovering new sources. Since the easy-to-find and cheap-to-produce oil was found and produced first, it is this cheap oil that is being exhausted. The new discoveries are going to be either hard to get at, (e.g., in the high Arctic or under miles of water) or in deposits that require extensive processing, such as tar sands or shale rock.

Your columnists cite the Arctic National Wildlife Refuge, the Gulf of Mexico, the Atlantic continental shelf and the Colorado oil shale as potential oil bonanzas. But, even if the oil exists, producing it will be very costly. For development of these sources to be economical, the world price of oil would have to be at least as high as it is now.

Oil companies have been exploring the Gulf, Alaska and the Baltimore Canyon, with disappointing results. Mean estimates of available U.S. oil seem to have been overly optimistic.

The second determinant of oil price is the commodities market. Oil, like wheat and corn, is traded on a futures market in which speculators contract for oil to be delivered at a future time. They lock in a price per barrel. At the end of the contract, the traders have to either accept delivery of the oil or sell out of their positions. If at the end of the contract, the market price is higher than the contract price, the trader makes a profit. If it is lower, the trader takes a loss. Supply uncertainty, such as a bad hurricane season or turmoil in the Mideast, pushes up the oil price on the futures market overall, so refineries must pay the traders more. If the U.S. government wants to see oil prices drop, it could reduce supply uncertainty by ending its feuds with Iran and Venezuela.

The third thing affecting price is the value of the dollar. Oil is traded in dollars. If the value of the dollar drops against goods and other currencies, the price of oil rises. The Bush Administration's practice of financing government by borrowing from foreigners pushes the dollar's value down. Also, the Federal Reserve has added hundreds of billions to the money supply to deal with the credit crunch. As a result, in the last three years, the dollars has lost 40 percent of its value against the Euro. If the dollar had held its own, oil would now be around $80 per barrel, and gasoline would be about $2.80 per gallon.

Finally, there is supply and demand. Since 2005, supply hasn't climbed much above 85 million barrels per day. Your columnist, John Reiniers, cited oil billionaire T. Boone Pickens as saying that supply has peaked at that level. Reiniers' column was a blame-the-Democrats rant, so he apparently didn't understand what Pickens was saying. Pickens believes that we are at "peak oil" and that supply will never be greater than today. Whether or not that is true, the supply of oil is constrained compared to world demand. The U.S., which has to import two thirds of its oil, is bidding against the world's other oil consumers for this limited supply. Our competitors have a lot of dollars to bring to the auction.

Because this oil shock is not a 1970s-style interruption of supply, but rather a long-term escalation of world demand, high oil prices are probably here to stay. America needs to get past the foolish practice of blaming environmentalists or "greedy oil companies" or OPEC. We need to start developing a whole new infrastructure if we want to survive in an era in which energy is no longer cheap.

Dallas Dunlap

Brooksville

Price Of Gas II

Re: "County Dealing With Gas Crisis" in the May 30 edition of Hernando Today.

Let's hope one of the measures implemented include turning off the engines on vehicles that are stopped. Or maybe the county has a policy that permits drivers and passengers the "right" to keep engines running in order to operate air conditioners and heaters so that a vehicle's interior is maintained at a comfortable temperature for those poor, overworked souls?

I am sick and tired of seeing county vehicles, stopped in multitudinous locations with the employees standing around outside it and with the vehicle's engine running. And not just for a few seconds. For many minutes. I stood and watched on purpose.

And maybe the county can train the drivers that jack-rabbit starts are not required from lights or stop signs or is it necessary to get to set speed limit by extended "pedal to the metal" type acceleration.

Funny how people misuse and abuse vehicles that they don't pay for in such ways they'd never treat their own vehicles. Too bad they don't realize it is their money that pays for all this.

Vilmar Tavars

Spring Hill