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Blame For High Oil Prices Is Misplaced — Even By Conservatives




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March 30, 2012 | 2,454 views | 2 comments

By Merrill Matthews

There has been some media grumbling lately - including from some who are viewed as conservative leaning - about U.S. oil companies exporting oil. The complaint: The U.S. imports and refines lots of oil, so why isn't that oil being sold to and used in the U.S. rather than to other countries?

Fox News' Bill O'Reilly recently blamed U.S. oil companies and the Obama administration for high oil prices. He got it half right - the second half. On Feb. 20, O'Reilly asserted:

"There is plenty of oil in the U.S.A. Prices should not be at record levels. But they are because the oil companies are sending their products overseas to make more money. And what is the federal government doing about that? Zero, nothing. Nada. ...

"Right now we are all being taken advantage of by an administration that has an anti-fossil fuel agenda and an oil industry that manipulates the U.S. market. Who is looking out for us? Nobody."

O'Reilly's solution? An oil export tax to force U.S. oil companies to sell their products in the United States.

To begin with, there's a big difference between unrefined crude oil and refined oil products - just as there is a big difference between component cell-phone parts and a finished iPhone.

The U.S. imports about 8.4 million barrels of crude oil a day, down from about 11 million barrels when demand was higher and domestic production lower. That imported crude is then refined, a manufacturing process in which the U.S. is the world leader - China is second, refining about half of the U.S. level.

The United States exports almost no crude oil, just 0.3% of our stock. We do, however, export refined oil products - about 3 million barrels a day. Only about 20% of those refined exports is gasoline that can be used for cars. The other 80% is composed of various oil products and byproducts - e.g., diesel, kerosene and heavy fuel oil - some of which is unusable or unwanted here because of environmental laws and other reasons.

Why export refined gasoline at all? First, the U.S. doesn't always need it. When the economy is down, as it has been, Americans use less gasoline. Refined gasoline that doesn't have an immediate U.S. buyer could be stored if there's space, which costs money and adds to the price, or sold and shipped to another country, which sometimes makes more economic sense.

For example, Mexico provides about 10% of U.S. crude oil imports, which the United States then refines - i.e., value-added manufacturing. Mexico buys back some of that oil at the higher refined price for its own use. If the U.S. couldn't refine that oil for Mexico, our southern neighbor and trade partner would have to get it elsewhere.

What U.S. refineries are doing is essentially what China does so effectively in many manufacturing areas - and some in the United States seem to envy and complain about. Raw materials or parts are shipped to Chinese companies, which are then processed or assembled, and the finished products are exported to other countries. That's the story of the iPhone. U.S. refineries are a huge American success story.

Second, location plays an important role. Have you ever bought more-expensive gasoline at a nearby station, even though the price is lower at a station several miles away? It's a cost-benefit calculation: Is the time and cost to travel to the lower-priced station worth it? Sometimes the answer is no.

Is it possible that refined oil purchasers might make the same cost-benefit assessment that we as consumers engage in regularly?

Suppose the state of Washington needs gasoline and a Texas Gulf Coast refinery has some available at the lowest price, but it would take time and money to ship it to Washington.

However, a Canadian tanker has just arrived with refined oil to sell; it's a little more expensive, but not by the time the transportation costs and wait-time are added to the Texas gas. Should Washington wait - perhaps paying more with shipping added in - just to "buy American"?

Yes, there are efforts to manipulate oil prices: That's one reason why OPEC (Organization of Petroleum Exporting Countries) - made up mostly of Middle Eastern countries - was formed.

But those are countries, not U.S. oil companies.

The good news is that oil producers and refineries are increasingly able to meet U.S. consumer demand. The bad news is that some believe that oil companies were engaged in economic manipulation when companies weren't able to meet U.S. demand, and now even when they are.

Merrill Matthews is a resident scholar at the Institute for Policy Innovation in Dallas, Texas. http://twitter.com/MerrillMatthews or follow Matthews at Forbes.com
 
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Your Opinions and Comments

 
Rock'n chair Rambler  
Over Taxed, TX  
April 1, 2012 8:08am
 
Finally, the truth about a complex problem!!! "some of which is unusable or unwanted here because of environmental laws and other reasons." Regulations also prevent gas from being transported around the country ... More ›

 
Elaine K.  
Floresville  
March 30, 2012 1:13pm
 
New post.

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