The Pink Flamingo :: One Reason Our Gas Prices Are So High?

Sometimes you aren’t quiet sure if a story is correct. Evidently there is some truth to this one. I handle Whitley Strieber with kid gloves. I’ve been told (years ago) by someone who worked with him, that there are problems, and will elaborate no further. Consequently, when I found this fascinating little article on one of the unarticulated reasons our gas prices are so high, I had to investigate a little. Well, it appears as though Strieber might be correct.
He wrote:

“…The reason for this is that Asian demand remains explosively high due to the fact that Asian nations continue to subsidize prices at the pump, meaning that consumers pay less than market value for gas and demand remains high. And guess where your rebate checks are going?

While in recent months subsidies have been reduced, they are still high enough to protect demand. By March 2008, India, for example, had paid $12.7 billion over a year to keep fuel costs to the consumer low, and the huge subsidies continue. In contrast, fuel has been rationed in China, but subsidies have returned for the Olympic year.

Where do the Asian nations get the tax dollars needed to pay for these subsidies? In significant part from taxes on exports— in other words, right out of the pockets of those who buy their goods, primarily American consumers. Wal-Mart, which buys vast amounts of what it sells from India and China, posted strong results for the first quarter of 2008, primarily because Sam's Club posted a 9.5% increase in sales. Most of Sam's Club's appliances are manufactured in Asia.

At present, the United States government is in the process of distributing a $157 billion tax rebate, the largest in American history. Consumer polls indicate that the rebate will go in two directions: it will be used to pay higher gasoline prices, and it will be used to purchase large appliances. This will have the effect of both increasing gasoline demand over the summer driving season in the U.S., and remitting more export earnings to Asia. And the taxes on those earnings will be used to subsidize gasoline, so demand from both the US and Asia is about to increase. It's no wonder many oil traders expect to see $200 oil soon, and $5.00 gasoline in the US.

Since 2005, China and India have considered ending or phasing out fuel subsidies, but the governments are afraid of the consequences if they do so. As recently as 2007, this was an issue in the US media, and it appeared that subsidies would be phased out. It did not happen. Since then, it has become silent on the subject, and so have the Indian and Chinese governments….”

NYTimes (November, 2007)

“…Retail prices of petroleum-based products like gasoline, kerosene and diesel are highly subsidized in many Asian countries, in part to make them affordable to citizens who earn lower wages than in the developed world. Governments absorb the costs directly or pass them along to oil exploration and production companies. India, for example, estimates that it will pay 500 billion rupees, or $12.7 billion, in fuel subsidies in the fiscal year ending in March 2008.

Confronted with higher fuel prices, consumers often curtail spending on manufactured goods or travel, which in turn can cool the broader economy. Among populations with high poverty, fuel price increases threaten to cause civil unrest.

Oil prices are up more than 50 percent this year, and light crude oil for December delivery leaped more than 1 percent in electronic trading Thursday, to a record $96.24, before sliding back to close at $93.49 on the New York Mercantile Exchange.

China raised fuel prices to “ensure the supply of domestic oil products and the promotion of energy conservation,” the National Development and Reform Commission said in a statement Wednesday. Fuel has been in short supply in China, leading to rationing and long lines…”

A year ago, from CNN

“…In Saudi Arabia gasoline costs about 45 cents a gallon. In Iran it's 33 cents. Venezuelans pay less than a quarter. These absurdly low prices are a direct result of massive government subsidies….But it's straining government budgets. More importantly, it's not allowing the free market to do its job. Higher prices on the open market are not leading to a drop in demand, which is keeping the cost of oil high for everyone else.

"Roughly two-thirds of new oil demand is coming from countries that have subsidized oil markets," said Christopher Ruppel, a senior geopolitical analyst with the consulting firm John S. Herold. "So demand is not going to be affected if oil goes from $60 a barrel to $80."

By no means does this let motorists in the United States off the hook. Gasoline consumption in this country has been rising even faster than normal, around 2.5 percent annually over the past couple of months, despite average prices in excess of $3 a gallon, close to an all-time record. But countries where consumption is rising the fastest may be surprising. With its white-hot economy, it's no surprise China tops the list. The country's oil demand is projected to grow 7.5 percent this year, according to statistics provided by Ruppel.

Ruppel said China still has gasoline subsidies, although lately the government has been trying to whittle them back. The average price for a gallon of gas in Beijing is $2.44, according to the research group AIRINC, which provided all the gasoline price numbers in this story.

But the second-highest demand growth isn't in the fast-growing economies of India or Brazil. It's Saudi Arabia, projected to consume 5.6 percent more oil next year, according to Ruppel.

Iran is number three, guzzling 3.3 percent more.

Russia and Egypt, which Ruppel said both have heavy gas subsidies, are also high on the list….”

Egypt may raise their prices.
India will continue to subsidize.

DISCLAIMER: This is a topic with which I am very unfamiliar. I am only taking it “so far” because I cannot in all honesty do more. I think it is something that needs to be investigated further, but I’m not the person to do it.

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