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Higher Fuel Prices

Why is it that, around the world, nothing sets citizens off into revolution more than high fuel prices? It almost seems that the evolving democracies had enshrined low fuel prices as part of their constitutions long before fuel ever existed.

Last month, we saw British truckers blockading refineries to get oil companies to lower their prices or to get their government to lower the fuel tax. Their contention was that they could not afford to operate anymore with higher fuel prices. Therefore they had a moral right to cripple the British economy—almost as if truckers and the services they provide would cease to exist if fuel prices were not lowered. This is absurd: we do need truckers to run our economies , and if higher trucking rates are needed to pay our truckers to stay in business, we will pay higher rates. If the British truckers organized themselves to stage protests, they certainly could organize themselves to demand a higher rate for their services.

In North America, the refining industry has been running at nearly full capacity for a few years. If three refineries had to shut down this summer, we would have seen a fuel shortage, whether the price of oil was $10 or $30 a barrel. Because we will gladly drive across town to buy gas at a half cent a litre less than our neighbourhood station (for an average savings of $0.25), the profits in the refining industry are not enough to build new plants.

Have you ever noticed that owners of recreational vehicles rarely complain about the high price of their RVs but sure have something to say when the price of fuel goes up? In my mind, these people should be the last people to complain, but, hey, if their hobby of travelling from one RV ghetto to the next RV ghetto at 3 miles per gallon is more important than people getting to work, farmers putting in crops, and school buses taking kids to school, then I guess they do have a right to complain.

And if we lower fuel taxes, we will not only lose a source of government revenues that need to be made up by other sources of taxation, we will not send the right market signals to use our fuel resources more wisely as a society. What good are low fuel prices if we are in a perpetual shortage?

Are the oil companies not making too much money? I say the refineries and retailers are not, and the producers are only making up for times for when oil was $10 a barrel a couple of years ago. But this debate is irrelevant anyway. If one believes that oil companies are manipulating markets to their advantage, then one should buy shares in oil companies to take advantage of the manipulation.

While we are on topic of buying oil company shares, do you realize that most mutual funds and pensions already have oil company shares as part of their portfolios? It seems that higher oil company profits would mean that owners of these retirement plans could retire earlier and wealthier. What’s the problem?

And how are we ever going to move to alternative sources of energy if we insist on keeping the prices of fuel low?

As much as we don’t like higher fuel prices, there is more to this issue than our supposed right to operate our vehicles as cheaply as possible. Let the law of supply and demand work its magic here—for the short and long term.

Copyright 2000 by Dave Volek

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© 2009 Dave Volek. All Rights Reserved.