ArcaMax

What's the deal with gas prices? None of us are happy about paying $4 per gallon for gas that as recently as three or four years ago was around $2 per gallon (or less). But why, exactly, have prices gone through the roof - literally doubling in the space of just a few years? Consider the three main theories:

Peak Oil - This is the common sensical idea that we may simply be running out of oil - and scarcity  in the face of increasing demand predictably jacks up the cost of any commodity, oil included. The "peak" part refers to the notion that the world has reached (or is close to reaching) its maximum production capacity, after which supply can no longer keep up with demand. 

In this scenario, we are headed for much worse than $4 per gallon. Some - including the leftie writer Howard Kunstler - predict the literal collapse of the oil-based/dependent Western economies and a return to a much-diminished, less technological future of animal and man-powered activity on the local and "sustainable" level.

Others - on the absolute opposite end of the spectrum - claim that Kunstler, et al, are full of beans and that there is actually more than enough oil to meet demand - it's just that for a variety of reasons (some conspiratorial, some not) this oil simply hasn't been tapped. It is claimed, for example, that there is more oil on the North Slope of Alaska (and in Canadian shale/tar) than there is in all of Saudi Arabia. But a tag-team of environmental regulations/prohibitions and the greed of oil companies who do not want to see $10 per barrel oil ever happen again are putting the kibosh on things.

The truth? Probably somewhere in the middle. There is probably only so much recoverable oil still out there - but it's also probably more than we're being told exists. The Earth is still a pretty huge territory and much of it (including deep sea beds, for one) still largely unexplored. Who really knows what's out there - and what we may find? And it is absolutely reasonable to assume the worst of large cartels such as the oil companies - who no doubt do all they can to keep profits high and their expenditures (for such things as new drilling platforms, technologies, leases on land, etc.) low.

"Futures" speculation - This is a tough one to understand if you aren't into the stock market, but the gist of it is that there are people who make money (lots of money) by betting on the future prices of a given commodity, such as oil - by purchasing so-called "futures" (basically, claims on some of the commodity) at a certain price and gambling that the price they paid today will be lower than the future value of that commodity tomorrow. It's the old buy low, sell high deal - just more elaborate.

Right now, a lot of the cash that was in the real estate and mortgage securities markets has been shifted out  of that Black Hole into the more profitable oil futures market - where money is being made hand over fist. It is this speculation that is creating a new bubble, very similar to the housing bubble, and possibly just as susceptible to bursting, too.

Critics say the price of oil and gas is thus being artificially manipulated - and inflated - for the benefit of a relative handful of Wall Street sharpies. The price we're paying at the pump bears no relation to the realities of supply and demand. Basically, we're being milked - just like millions got milked during the height of the real estate bubble, when property values inflated by as much as 20 or 30 percent in the course of a single year. Those who cashed in made out like bandits. Those who  bought in just before the bubble burst got left holding the proverbial bag.

Others argue, with some credibility, that the futures market (in oil) is roiling because of wars -and rumors of wars to come. The Iraq business is bad enough, but the real concern is that either the US or Israel will launch an attack on Iran at some point in the near future - which could cause oil prices to hit $200 per barrel (or more) and the price we pay at the pump to slouch upwards of $6 per gallon.

The truth? Again, it's a bit of both, in all probability. There's no question that the speculative pressures of the futures market has played a role in the rising cost of oil - and while some of that is certainly cheesy, the market's fear of a potential US-Iran cage fight in the middle of the world's main source of oil is not unfounded paranoia. The talk keeps bubbling up; something could happen - and if it does, we may be lucky if the price of oil only rises to $200 per barrel and $6 per gallon at the pump.

Greedy oil companies - The old standby. People of a liberal-left bent are especially inclined to pin the tail on the Big Oil donkey. They see double-chinned pot-bellied GOP-snuggling greedheads of the Dick Cheney type with their fat little fingers dug deep into our pockets. These critics will typically point to the record high profits of the Exxon-Mobil cabal.

Those on the right will usually counter that it's not fair to look at gross receipts; that the critical figure is what the net profit being made is. According to this view, the net profit being earned by the major oil companies is par for the corporate course; that they're not making more than, say, Microsoft.

The truth? Well, the oil cartels are making a whole helluva lot of money; and they do enjoy obnoxiously favorable tax breaks that enable them to dodge much of the tax hit that bozos like you and me get smacked with every April. They are also able to pay their CEOs a bajjillion dollars annually in "salary" without batting an eye.

But the real crime that Big Oil stands convicted of is not price gouging per se but rather its skin-flint refusal to reinvest some of that boodle in new refining capacity - which would do more to ease the current crunch than 20 IQ points and some psychiatric counseling would do for W's humanity.

Most people don't realize this, but there's a major blockage in the system that has nothing to do with the supply of oil as such. By itself, the stuff is just brown goo. You can't burn it in your car, you can't make anything useful out of it. It has to be refined first  - and the problem is we don't have sufficient refining capacity to keep up with demand. Toss in a natural disaster or mechanical failure that puts even one facility off-line for a couple of weeks and you'll see prices for gas spin upward like a run-amok pachinko machine.

If Big Oil would make some long-term investments in infrastructure, gas prices would probably be more stable - and lower, too.

And if we could figure out a way to control even one of the three problems just discussed, we might get a handle on the whole ugly mess. But don't look for that  - or $2 per gallon gas - to happen anytime soon. 

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www.ericpetersautos.com or EPeters952@aol.com for comments.