Morning coffee with a congressman
U.S. Rep. Fred Keller, R-Kreamer, and I went to the same high school, although at different times. I presume we had some of the same teachers. We apparently did not learn the same lessons in the field of economics. Keller’s “Blame It All on Biden” editorial on April 18 came across as just a tad disingenuous.
This is basic economics, but the congressman you should know that. COVID hindered economic activity in 2020 creating a drop in demand followed quickly by a glut in supply and associated price decreases to clear the oil surplus (2020-2021). Economic recovery driven by pent up consumer demand reversed the supply situation from surplus to a perception of shortage and brought higher prices (2021-2022). (I say perception because at the time of the 2020 election, US domestic production stood at 11,121 thousand barrels per day compared to 11,769 a year later. The price of oil on today’s market is at least partially a product of hedge fund speculation.) The ripple effect was to drive up food prices as higher transportation costs became the norm. Add to the issue Russia’s recent invasion of Ukraine and the international response which curtailed the number of buyers for Russian crude, and you have today’s perfect storm.
Economists characterize the demand and supply curves for petroleum as “inelastic” with supply being the more inelastic of the two. What this means is that a rapid rise in demand does NOT create a corresponding rapid rise in supply. Increases in supply tend to lag increases in demand.
Simply pumping more oil is not a short-term solution to the problem despite what Keller suggests. It takes time to put older less productive wells back into production, longer still to drill new wells (the inelasticity of supply). As for pipeline capacity, it is still sufficient for US needs. While we are at it, let me point out the Keystone Pipeline is functional, and the Keystone XL pipeline never was as it was only 8% complete when environmental concerns and associated legal questions brought construction to a halt. Both were designed to move Canadian, not US crude.
So, to summarize, in a capitalist (rather than say socialist) economic system, the market, not presidents, congress, or bureaucrats determines the price of most commodities. Crude oil is priced on the international market. Unless you are campaigning for socialism, Mr. Keller, you might consider brushing up on your economics and some history before putting pen to paper. Our teachers at Shikellamy expected better of you.
Submitted by Virtual Newsroom