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Oil Prices Untangled 

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Thanks for your article “Mystery at the Pump” (6/27/13). The price of oil is an incredibly important subject that affects everyone in the world, so I’d like to expand on the subject.

The price of oil has a greater effect on family budgets than most realize. Its greatest effect is on our transportation costs, but many don’t realize the significance of oil prices on the cost of food. Most modern farms use petroleum-based fertilizers, use oil-powered machines to plow their crops and then use oil-powered vehicles to transport food to distributors and wholesalers. It should come as no shock that our rapid increase in gas prices over the past decade has also come with an increase in food prices. While gas went from $2 a gallon to $4 a gallon, the FAO Food Price Index has more than doubled in nominal terms and is up 30 to 50 percent after adjusting for inflation. Local organic food sources are able to cut out a lot of these steps through avoiding petroleum fertilizers and minimizing the distance food needs to travel from its source to its consumer.

Each year, the federal government spends tens of billions on fossil fuel subsidies. Although we would like to think these subsidies help the citizens suffering at the pump, it would appear the money is simply being pocketed by oil companies. In 2011, four of the five most profitable companies in the world were oil companies. I would have an easier time believing these subsidies were meant to help consumers if oil company profit margins were more like those of grocery stores.

Getting at what the real price of oil and gas should be is difficult due to a multitude of factors. The supply side is caught in a debate between whether we are facing “peak oil” or a new era of oil abundance. The demand side wrestles with miles driven per person falling since our latest recession, but a growing worldwide population quickly offsets it. The reality is that oil is a non-renewable resource. We are long past the era when oil was shooting out of the ground in Pennsylvania and Texas, as it was a century ago. We are now in the era when most of our new oil sources are deep-drilling offshore oil sites — a much more capital-intensive operation. Offshore drilling also carries much more risk, well-evidenced by the infamous 2010 oil spill in the Gulf of Mexico. If “peak oil” is in fact a reality, it doesn’t necessarily imply that we will run out of oil, but rather that we have run out of cheap, easily accessible oil.

Despite all the gloom and doom, there is some optimism in the innovation of clean, renewable energy sources. Nearly every month there’s a new major breakthrough in the efficiency of solar panels. Although one cannot simply put a solar panel or a windmill in their gas tank, the advancement of electric cars opens up the possibility to use multiple energy sources to power our transportation — perhaps including energy sources we haven’t even discovered yet. I often hear the advancements in electric cars criticized for not being economically viable without a considerable federal subsidy, but let’s not forget the massive subsidies big oil receives. Before we are willing to bash a $600 million investment in the failed Solyndra, we should consider the context of our federal government spending trillions to secure oil sources around the world and tens of billions to subsidize the corporations who profit from them, without any notable reduction in gas prices to show for it. 

Ian Nordstrom lives in Spokane.

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