The Devil's in the Details--Part II

One-Billion-three-hundred million Chinese versus two-hundred-ninety-three million Americans. A ratio of slightly over four to one. That’s what it really comes down to when you look at crude oil prices.

In spite of what the mainstream media and the Democratic National Committee may write in fine print news editorials, exclaim in 72 point newspaper headlines, or say in their prime time TV news programming, the fact is that current crude oil pricing is only partially driven by a short term deficiency in crude oil production. A major contributor to high crude prices is long term increases in Chinese and third world energy consumption, and the pricing of gasoline is further complicated by the static nature of US domestic oil refinery capacity.

That’s right, the current oil price increase causing pain in the nation’s pocketbooks is not caused by the political ineptitude of the Bush administration, but rather (not Dan Rather) by international influences like the 100% increase in Chinese crude oil consumption over the past 10 years as their population increased by only 8%. While the US population grew at approximately the same percentage rate, our crude oil usage only increased by 10.9% over the same period. And here’s a really scary fact--if China’s oil consumption grew to match the US rate of consumption on a per capita basis, they would consume over 80 million barrels per day! That’s more than the current WORLD WIDE production capacity! God help us all if that situation ever actually developed.

It’s just an unfortunate coincidence that the economic piper has to be paid here in the US this year before a presidential election. But here is a disturbing consequence that I believe to be intentionally promoted by the self proclaimed independent national media. Bush seems to loose politically no matter what direction crude oil prices take.

Case in point, the media uproar last April over assertions in journalist Bob Woodward’s book, “Plan of Attack”, that President Bush’s ties to the Saudi Royal Family had allowed him to “secretly” negotiate Saudi assistance in lowering oil and gas prices in the fall in order to help his re-election campaign. CBS’s 60 Minutes correspondent Mike Wallace anchored a segment giving Woodward extensive prime time space to publicize the book. You do remember that both CBS News and “Plan of Attack” publisher Simon and Schuster are both owned by Viacom?

“Woodward says that Bandar (the reigning Saudi Prince) understood that economic conditions were key before a presidential election: ‘They’re [oil prices] high. And they could go down very quickly. That's the Saudi pledge. Certainly over the summer, or as we get closer to the election, they could increase production several million barrels a day and the price would drop significantly.’ “

John Kerry wasted no time jumping all over that revelation:

“If ... it is true that gas supplies and prices in America are tied to the American election, tied to a secret White House deal, that is outrageous and unacceptable to the American people,” Kerry said during a campaign stop in Florida. “If this sounds wrong to you, that’s because it is fundamentally wrong.”

“Kerry said he had his own plan for lowering gas prices. ‘And you know what the Number One priority of that plan was? Put pressure on the Saudis to increase production and lower the prices to America,’ he said.”

Notice that Kerry did qualify his statement with the words “if it is true,” but managed to get the mantra of “secret White House deal” and the attack words “outrageous and unacceptable” sprinkled in for good measure. Would it be ok for President Bush to negotiate with the Saudi prince regarding pre-election oil prices if he conducted the negotiations in public? Or if there wasn’t an election for a few years, would it be ok to secretly negotiate oil pricing simply for the economic good of the American people?

By his statements it would appear that Kerry does at least recognize that of all of the world’s petroleum producers, Saudi Arabia--with proven reserves in excess of 250 billion barrels of crude and an average daily production of nearly 9 million barrels--is definitely the country with which the US needs to maintain close political and economic ties. Saudi Arabia is also the only OPEC member with substantial unused output capacity. All of the other members of OPEC essentially operate at their maximum capacity all of the time. The Saudis could actually pump an additional one and one half to two million barrels of crude oil per day--on “demand.”

I use the word “demand” because that is what Kerry says that he would do, he’d: “put pressure on the Saudis to increase production.” How many tanks and F-15’s is the silken tongued Kerry going to transfer to the Saudi Arabian border from Iraq and Afghanistan? Or perhaps he is planning on getting down on one knee and proposing to another wealthy heiress, this one wearing a hijab?

Fast forward with me now through this past summer as crude oil prices continued to rise, recently breaking the $50 per barrel mark. On October 5th , The New York Times carried a story about the Kerry campaign and the 527 group “The Media Fund” releasing new ads hammering on the Bush Administration “as giving the (Saudi Royal) family ‘special favors’ and as having an over-reliance on Saudi Arabia for oil.”

Now it’s Bush’s fault and the Bush-Saudi connection is the reason that crude oil has toped $50 per barrel. Can they really be serious? They can’t have it both ways. Didn’t Kerry previously state that his “Number One Priority” in his energy plan included reliance on the Saudis? This makes complete sense since the Saudis have the greatest known oil reserves in the entire world-- more than the rest of OPEC put together. And what about their ability to easily increase daily production by nearly 15%?

So NOW what would Kerry do in lieu of relying on the Saudis—drill in the Alaskan ANWR preserve?

And once again, as in the past, when faced with inaccurate reporting, inconsistencies, or outright lies, the media gives itself and the Kerry campaign a pass by conveniently forgetting to mention their prior statements about the existence of “secret plans” to artificially lower crude oil prices in the months prior to the election. If the price of crude had actually dropped through the summer, I guess that the headlines would read: “Gas Prices Tumble, Bush in cahoots with the Arabs…”

In spite of all of the uproar over Crude oil prices, here is the bottom line. The American people could care less about the price of a barrel of crude oil. Most of them wouldn’t know a barrel of crude oil if it landed next to them on the sofa in their living room during a broadcast of 60 minutes. Its the high gasoline prices that has their panties in a wad. And here is a fact that the TV news won’t tell you and I keep screaming at the top of my lungs in public when discussing this issue —US gasoline prices today are still not as high as they were in 1980 at the end of Democratic President Jimmy Carter’s term when they rose to a level equivalent to $2.85 per gallon in 2004 dollars.

Gas prices will not see a substantial reduction until the US reduces their reliance on imported oil and increases their domestic refinery capacity. Most of the media and virtually all of the politicians are either misinformed on this issue or are outright liars.

By the way, if you can’t afford to drive that gas hog Chevy Suburban that you bought two years ago, you better sell it now while it is still worth something and go buy yourself a compact car. Sorry folks, but dollar-twenty-five a gallon gasoline is ancient history.

UPDATED on 10/08/04 3:00 PM

I corrected an error in the growth rate of the US and Chinese populations in the third paragraph (I was off by 50%--and me with an engineering education...go figure.)

Also, I failed to mention the absurdity of the campaign by the Democrats and the media to tap the Strategic Petroleum Reserve in an effort to reduce gasoline prices.

The bottom line is that if we dumped the entire 700 million barrel contents of the Strategic Petroleum Reserve into the refineries here in the US we would gain less than 40 days of gasoline inventory. This is because the SPR, stored underground in various gulf coast salt domes, contains both “sweet” low sulfur (< 0.5% sulfur) crude oil suitable to be easily refined into gasoline and “sour” high sulfur (<2.0% sulfur) crude oil best suited for refining into heating oil, boiler fuel oil, and diesel fuel.

Not a real solution, just a political band-aid.