The Absurd Report

While most Americans are anxious about rising fuel costs, and all Americans are impacted by the increased price for oil, the reasons for the quick rise in the price of a barrel of crude since 2004 are many and complicated.

One of the most pressing factors in the oil crisis is that oil is traded on U.S. currency. What’s this mean? That it’s bought and sold on a dollar rate, as opposed to pounds sterling, euros, or yen. When the dollar declines in value, as it has declined in value over the last several years, it takes more dollars to buy a barrel of oil, and that translates into higher prices at the pump. The declining value of the dollar, based on factors ranging from deficit spending to increased entitlement payouts to the chaotic stock market, means that Americans have been hit harder by the increased price of oil relative to other countries that have enjoyed steady currency values. This is further complicated by the recent slowing of American economic growth, which has compelled oil speculators to invest in oil futures as a “sure thing.” The result of this set of controls is that the actual American demand for oil is perceived as disproportionately drastic by Americans.

Contrary to popular belief, sport utility vehicles are not part of the problem. Automobiles account for a minor share of American fuel consumption. Demand for oil in the form of gasoline has decreased in the last several years, a result of the free market’s impact on demand.
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As controversial as it is to question the wisdom of ethanol production, it’s worth noting that ethanol is part of the reason for increased oil prices. This may seem counterintuitive, but the process of creating ethanol requires the expenditure of nearly as much petroleum-based fuel as is created by the ethanol process.

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Tags: Energy Policy, Oil and Gas

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