Last week Sen. Charles Schumer (D-NY) claimed that gas prices are rising because too many oil companies have been allowed to merge in the last decade. If one could identify 100 factors responsible for causing high gas prices, mergers would be number 101.
Fifteen additional Democratic senators, including Minority Leader Harry Reid (D-NV) and Sen. Hillary Clinton (D-NY) also got into the hot air act. They wrote a letter to President Bush, asking him to support anti-price gouging legislation, solve the “dangerous problem” of dependence on foreign oil and join them in an “emergency bipartisan national energy summit.” Their solution? Increase consumer access to biofuels, alternative fuels and energy efficient vehicles. That sounds good on camera, but it does not address the problem.
This week House Speaker Dennis Hastert (R-IL) and Senate Majority Leader Bill Frist (R-TN) wrote their own letter to the president, asking Bush to call for a Justice Department investigation into alleged oil company price gouging. Senators Arlen Specter (R-PA) and Carl Levin (D-MI) renewed demands for a windfall profits tax on oil companies’ earnings Levin characterized as “extreme” and “obscene.”
In the real world outside Congress, many market, regulatory and tax factors contribute to fluctuations in the price of a barrel of oil or a gallon of gas. The three biggest factors are basic supply and demand, refining capacity and market uncertainty.
First, it is imperative to understand that oil is a product whose price is set by the global commodities market, and the price fluctuates every day. Worldwide demand for oil is skyrocketing due to increased economic growth in developing nations, particularly India and China. India’s annual growth rate is 7 percent; China is growing at 9 percent annually. Each country has over a billion people. Due to increasing worldwide demand for crude oil, the International Energy Agency has stated that this year the OPEC nations will have to produce about one million barrels a day more than previously planned.
Herman Cain is the National Chairman of the Media Research Center’s Business & Media Institute. He is the former president and CEO of Godfather’s Pizza, Inc., and currently is CEO and president of T.H.E. New Voice, Inc., a business and leadership consulting company.
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