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Free Markets Rule
As the summer driving season heats up, and gasoline prices continue to FALL, we get another lesson—and apparently we need it—on just how free markets work. The big question to ask is, ‘Where are the three-dollar-a-gallon gas prices?’ The answer, of course, is, ‘They are nowhere to be found.’ That is because the gloom-and-doomers and fear mongers were wrong again, as they have been so often in the past.
It was just late last year and earlier this year when gasoline prices started to rise, and quickly all the so-called experts and fear mongers were beating the drum, saying this was going to be a repeat of last summer’s energy problems, but worse. Finally, for the gloom-and-doomers, three and maybe even four-dollar-a gallon prices would be seen, misery would be everywhere, they would for once be correct, and therefore, HAPPY.
Well, it just hasn’t happened that way. A combination of slowing economies and those higher prices have led to what now appears to be almost a glut in petroleum reserves. That’s the way the free market works. It works without the help of the politicians, artificial regulations, committee hearings, and demagogue-like speeches; it works as free markets most always do—by itself. The higher prices of the previous quarter contributed to a slowdown not only in our country, but around the world. In turn, the higher prices also made for more conservation, and the most important thing, more production. There are many wells around the world, including thousands here in the U.S., that aren’t economically viable when oil prices sink to lows of $10 and $15 a barrel, as seen last year. But, as those prices rise and cross $25 and even $30 a barrel, those inactive wells become quite profitable, and are uncapped by their producers, joining the production line again. Thus, oil prices are not only under $30 a barrel, but challenging $25, and some experts now say we may even see oil prices at under $20 a barrel later this year. Natural gas prices, by the way, have fallen by about 60% this year.
While OPEC continues to get all the attention, more and more oil comes from non-OPEC sources. It even looks like the former Soviet Union is now going to get their act together and start producing oil and natural gas in significant quantities next year, further loosening OPEC’s grip on world oil prices, and creating more suppliers. The Energy Department now tells us that the rate of growth and demand for energy has grown only by 20% of the original projections for this summer. Natural gas prices, by the way, have fallen by about 60% this year.
As a subheading of the energy "crisis" that never materialized, it now looks like even California will not fall off the face of the earth; the economic disasters predicted seem not to be coming true, despite the fact that for the past 12 years, they fully enjoyed their economic prosperity while totally ignoring the need to build new infrastructures, such as new power plants and new power lines. They still want the rest of us to pay for their neglect, and hopefully, we will not do that, hopefully, they will get a little more realistic about what their power needs are, play a successful game of catch-up, and be spared the economic agony that in truth they probably deserve.
Lower energy prices will also help the economic recovery expected later this year. Equally, if not more important, are the Fed rate-cuts and the tax rebates coming soon, but just as higher energy prices slowed the economy previously, lower energy prices are now putting more money in the all-important consumer’s pocket. The bottom line is that the free market has worked again. Ironically, nobody knows that better than OPEC, and within OPEC, Saudi Arabia, the country that has the largest petroleum reserves in the world. The Saudis know that if prices get higher than $30 a barrel, the free market will work and produce conservation and competition. They also know that if prices remain around $25, the world and especially those of us here in the U.S., are more likely to mindlessly keep using energy—just the way the Saudis and OPEC like it. We still import more than 50% of our energy from foreign sources and free market or not, that is not such a great idea.
(Tom Butenhoff is a First Vice President with J. E. Liss and Company, Inc.
in Milwaukee. The views are his, and not necessarily those of Liss
Financial Services or the Job Connection/Hiring
Network.)