In the 1970s the big concern was that the world was simply running out of oil — during the gas shortages some “experts” claimed the world would run out of oil by the end of the mid-1980s. That never happened, but there is some evidence that government intervention is accomplishing pretty much the same thing.
Today the problem is that although there is a glut of oil, the capacity to refine oil into gasoline and then transport said gasoline is constantly being diminished thanks to government regulation. This was one of the major causes of this summer’s price hikes in the United States. Although oil prices increased, the increase in gasoline prices was exacerbated by a combination of new EPA regulations requiring specially formulated gasoline for a few areas of the United States. When problems happened with refineries and pipelines designed to carry this new gasoline formulation, it quickly became apparent that energy producers had almost no extra capacity to refine and transport the gasoline elsewhere. Prices quickly shot up especially in the Midwest and California.
At a recent OPEC meeting, Venezuela’s oil minister Ali Rodriguez claimed this is quickly becoming a worldwide problem. “We are approaching a crisis of great proportions because oil production capacity is reaching its limit,” Rodriguez said.
Among other things, Rodriguez cited refinery bottlenecks, transportation restrictions, and high taxes imposed by oil importing countries as the driving oil prices ever higher. Rodriguez also blamed financial speculation for high oil prices, but failed to note the role that the OPEC cartel plays in artificially keeping the price of oil high as well as encouraging such speculation by allowing fortunes to be made on whether people guess correctly not what the size of oil supplies or demand for oil is, but whether guessing correctly what OPEC will decide to do next.
Just as in the 1970s gasoline crises, it is decisions made by governments and other political actors, rather than the free market, that is responsible for high energy prices.
Source:
World ‘faces oil crisis’. The BBC, September 12, 2000.