Dependence on Foreign Oil

US President Barack Hussein Obama bows to Saudi King Abdullah in the photo above.

Do you think we're about to decrease our dependence on foreign oil anytime soon?

One year ago, crude oil peaked at $147.27 a barrel and a gallon of unleaded gasoline topped out at about $5.00 a gallon in California (state and federal taxes included). The upward price was pushed by speculation and the futures market and projections of huge increases in demand. The bubble popped as the severity of the worldwide financial crisis took hold and on December 17, 2008, the price fell to $32.40 a barrel. This year the price moved back to a high of $72.68 a barrel on June 11, 2009.

As the captioned photo (above) would tend to indicate - the President of the United States bows to his fellow Muslim to show deference. The only thing the Saudis have going for them is oil and the production capacity to influence prices worldwide. It's not simply Obama. It's every US President for the last fifty years.

We have a self-inflicted dependence on foreign oil. For example, roughly half the cost of every gallon of synthetic oil produced in the US goes to federal and state taxes (source: Truman Stovick, prof. Missouri State University at a meeting of the American Institute of Chemical Engineers). There is no US tax on foreign oil. We tax domestic production with a vengeance but allow foreign oil to flow to the US without a tariff.

Rather than pick a technology (such as ethanol from corn) and give it an incentive, we need to level the playing field. Incentives frequently lead to bad technology. Ethanol takes more energy to produce from corn than it yields. It takes 11 acres of corn to fuel one automobile with ethanol for 10,000 miles.

Back to oil and the present situation -

• Barring a supply event such as a big hurricane in the Gulf of Mexico or a new war, prices are not going to spike this summer. Refiners have taken capacity off line in response to the decreased demand of summer driving.
• The worldwide recession has left the dollar strong because a number of countries are worse off than we are. Since oil is traded in dollars, this is important to US consumers.
• Lack of demand in a time of plentiful supply has led to decreased production costs, particularly for drilling and finding.
• The volatile price of energy resulted in a reduction in capital spending, setting us up for more price volatility when global markets recover from the present slump.
• US companies are taking refineries off-line for "maintenance" but they are not bringing them back on. At the same time the rest of the world is adding refineries. It's cheaper for oil companies to refine oil off-shore and ship it to the US. In the future we will be MORE dependent on our refined products from foreign sources.