The High Cost of Labor Contracts and Environmental Regulations cause Planes to Run Low on Fuel

Posted by PITHOCRATES - August 26th, 2012

Week in Review

Here is a lesson in basic economics.  There is a tradeoff between costs and safety in aviation.  You could hire thousands of additional mechanics to give an airplane a complete overhaul after each flight.  And double their pay rate just to make sure they are especially happy workers.  You can have a couple of chase planes follow a passenger airliner on every flight to observe the outside of the aircraft so they can warn the pilot of any problems.  And you can top off every fuel tank on an airplane just to be extra safe.  These things would make flying safer.  But they would also make it very expensive to fly.  So expensive that few people would fly.  Thus reducing the amount of airplanes in the sky.  As well as the number of flight and maintenance crews.  Which illustrates the ultimate cost of generous union contracts.  The more they ask for the more they put themselves out of a job.

But these unions are powerful.  Margins are so thing in aviation that a strike could turn a profitable year into a money losing year.  So to avoid a strike they cut costs where they can.  And the one cost that gives them something to work with is their fuel costs.  Because an airplane only needs enough fuel to fly from point A to point B.  Plus some reserves.  So they are very careful in calculating the fuel requirements to get from point A to point B.  But sometimes weather can enter the picture and add a point C.  And this can sometimes cause a fuel emergency (see Pilots forced to make emergency landings because of fuel shortages by David Millward posted 8/20/2012 on The Telegraph).

Pilots have had to make 28 emergency landings because they were running low on fuel according to figures compiled by the Civil Aviation Authority…

Although the total represents of fuel-related emergency landings is a reduction on 2008-10, when there were 41 such incidents, some pilots have warned the airlines are operating on very narrow margins as they seek to cut operating costs…

One retired pilot told the Exaro website that he and his colleagues were under pressure from airlines because of the industry’s need to keep costs down.

“There is pressure on pilots by airlines to carry minimum fuel because it costs money to carry the extra weight, and that is quite significant over a year…

“The way in which aircraft are being developed in becoming more fuel efficient, there is less need for fuel.

We make jet fuel by refining petroleum oil.  And two things make this an expensive endeavor.  Higher environmental regulations.  And reductions in supply.  Often due to those same environmental regulations.  If they allowed the American oil business to drill, baby, drill, it would be safer to fly.  Because fuel would be less expensive.  And airlines could more easily afford to carry the extra fuel weight.

Airlines don’t have much power over controlling the price of jet fuel.  It is what the market says it is.  They have a little more luck in keeping their capital costs down thanks to the bitter rivalry between Boeing and Airbus.  Who are both eager to sell their airplanes.  Cutting their labor costs is another option they have but it comes with great political costs.  Usually it takes the specter of bankruptcy to get concessions from labor.  So when it comes to cutting their operating costs the least objectionable route to go is to cut fuel costs.  By loading the absolute bare minimum required by regulations.  And for safety.  Airlines want to save money.  But having planes fall out of the sky to save fuel costs will cost more in the long run.  In more ways than one.  (It’s hard to get people to fly on an airline that has a reputation of having their planes fall out of the sky.)

So there are only two practical options to fix this problem of skimping on the fuel load.  Either you drill, baby, drill.  Or you get labor concessions to lower you labor, pension and health care costs.  The very same things that are bankrupting American cities.  So you know the costly union workers are all in favor of drill, baby, drill.  Because the lower the cost of jet fuel the less pressure there is on their pay and benefits.

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If the Laws of Supply and Demand can lower the Price of Coal it can lower the Price of Oil

Posted by PITHOCRATES - May 20th, 2012

Week in Review

Even energy responds to the laws of supply and demand.  Which is treating Australian coal pretty poorly now.  On top of being demonized and punished by their government.  Poor energy.  What has it ever done to deserve this?  All it has ever done was to make our lives better.  By increasing our standard of living.  And the thanks it gets?  It is reviled.  Ostracized.  And bullied.  Governments hate energy but they have no problem taking its money.  And they just keep taking more (see DJ Queensland Government Pulls Support For Coal Port Expansion by Cynthia Koons, DOW JONES NEWSWIRES, posted 5/19/2012 on London Stock Exchange).

The Queensland government has withdrawn its support for a 9 billion Australian dollar (US$8.86 billion) coal port expansion in the northern part of the state, in a sign the country’s resources boom is losing steam…

Rio and fellow mining giant BHP Billiton Ltd. (BHP.AU, BHP) have been complaining about the challenges and cost of doing business in Australia lately. The federal government has recently passed new mining and carbon taxes that will add to miners’ tax burdens. Labor shortages have driven up wages and labor disputes are hurting production at BHP Billiton’s Mitsubishi Alliance Queensland coal mines…

The price of Australian thermal coal has fallen recently, to around US$98 a ton, down 21% from its average price in the first quarter of 2011. Concerns about slowing demand from China have weighed on the price. A glut of natural gas in the U.S. has also pushed some U.S. coal into export markets while other major global thermal coal suppliers like Colombia and Russia are sending coal that would have normally sold in Europe into Asian markets.

The lesson to take away from all of this?  Besides governments demonizing energy so they can tax it more.  Energy responds to the laws of supply and demand.  Australian coal prices fell because demand has fallen in China.  And America is sitting on so much natural gas (and their government hates coal) that they’re putting more coal onto international markets.  More abundant the supply the lower the price.  And this bumper supply of coal is hurting the Australian coal industry.  (On top of their government hurting it, too).  The same would work for oil.  If only we drilled for it.  Yes.  Drill Baby drill.  Because if we bring more oil onto the international market we can lower the price of oil.  Just like we’ve lowered the price of coal.  It works.  Drill baby drill.  Because energy responds to the laws of supply and demand. 

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Drill, Baby, Drill works well in Russia, Nigeria, Saudi Arabia, Kuwait and the UAE

Posted by PITHOCRATES - April 29th, 2012

Week in Review

So if we drill, baby, drill for oil everywhere it won’t do a thing to lower oil prices.  According to the Obama administration.  Besides, we’ll just export the oil (or refined gasoline) anyway.  So what’s the point?  Well, here’s a thought.  Oil prices are high.  So if the U.S. drilled for oil everywhere and exported all of that oil it may not impact the price of gasoline (though most rational people believe it would) here’s something else that could come from it (see Petrodollar profusion posted 4/28/2012 on The Economist).

FIRST, the good news: China, the country at the centre of the debate about global imbalances, has a current-account surplus that has fallen sharply over the past few years. Now the bad: China was never really the prime culprit when it comes to imbalances at the global level. The biggest counterpart to America’s current-account deficit is the combined surplus of oil-exporting economies, which have enjoyed a huge windfall from high oil prices (see left-hand chart). This year the IMF expects them to run a record surplus of $740 billion, three-fifths of which will come from the Middle East. That will dwarf China’s expected surplus of $180 billion. Since 2000 the cumulative surpluses of oil exporters have come to over $4 trillion, twice as much as that of China…

The most effective policy tool to reduce oil exporters’ current-account surpluses is public spending, and investment in particular because of its high import content. Increased public spending could also help these economies diversify away from oil. That would support their future economic development and create more private-sector jobs for young, growing populations. To maintain social stability, many of these governments need to spend more on education, health care, housing and welfare benefits. Some oil producers, such as Russia and Nigeria, are running fairly balanced budgets, but the governments of the Gulf states are awash with cash. Since 2005 Saudi Arabia, Kuwait and the UAE have increased public spending by 7-8 percentage points of GDP. Even so, the three countries are expected to run an average budget surplus of over 15% this year. That leaves plenty of room to be a little more spendthrift.

Europe, Japan and the United States are suffering under huge budget deficits and trade deficits.  Their aging populations and the pensions and health care for them is threatening the solvency of these nations.  Who have no choice but to raise taxes and borrow ever more money to pay these obligations.  You know who doesn’t have these problems?  Those big oil-exporting economies.  Who are “awash with cash.”  Unlike Europe, Japan or the United States.  Seems to me that it’s better to be “awash with cash” than to be mired in debt.

So drill, baby, drill I say.  Let’s have the same problem the oil exporters are having.  Too much cash.  We could eliminate income taxes.  AND pay all our Social Security and Medicare obligations.  As well as all the education and women’s health programs you desired.  Wouldn’t that be nice?  I mean who would be opposed to that?  Except, of course, the Obama administration.  Because according to them there is nothing to gain from putting more oil onto the market during record prices.  Too bad our president isn’t as much a free market capitalist as they are in Russia, Nigeria, Saudi Arabia, Kuwait and the UAE.

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Newly Found Oil Reserves may break the Cycle of Oppression due to Poverty and Corruption in East Africa

Posted by PITHOCRATES - April 15th, 2012

Week in Review

East Africa is plagued by poverty, political corruption, lack of infrastructure, poor health conditions, AIDS epidemics, high infant mortality rates and everything else that goes with impoverished, corrupt countries.  Somalia is home to pirates that are the scourge of the high seas.  Ethiopia’s recurring famines are well known.  Uganda had Idi Amin.  Who terrorized his people with murder, rape and torture.  South Sudan came into being after a bloody civil war.  Where tribal civil wars continue within the new South Sudan.  As they do throughout much east Africa.  Because there are no advanced economies to support a prosperous middle class.  Just a ruling elite terrorizing the impoverished masses who survive on subsistence farming.  But that may all be changing (see Eastern El Dorado? posted 4/7/2012 on The Economist).

IN ENERGY terms, east Africa has long been the continent’s poor cousin. Until last year it was thought to have no more than 6 billion barrels of proven oil reserves, compared with 60 billion in west Africa and even more in the north. Since a third of the region’s imports are oil-related, it has been especially vulnerable to oil shocks. The World Bank says that, after poor governance, high energy costs are the biggest drag on east Africa’s economy.

All that may be about to change. Kenya, the region’s biggest economy, was sent into delirium on March 26th by the announcement of a big oil strike in its wild north. A British oil firm, Tullow, now compares prospects in the Turkana region and across the border in Ethiopia to Britain’s bonanza from the North Sea. More wells will now be drilled across Kenya, which also holds out hopes for offshore exploration blocs.

President Obama continually tries to tell the American people that we have the smallest oil reserves in the world yet we consume the lion’s share of the world’s oil production.  But that’s not true.  There’s a lot of oil out there.  But you have to drill first to find it.  And until you do you can’t prove these reserves.  So no one counts them.  Including our president.  But it doesn’t stop anyone from looking for oil and natural gas.  If they are not forbidden to do so.  Like they are in America wherever the government has a say in the matter.  People once thought east Africa had no energy.  But it didn’t stop them.  Who believe in the policy of ‘drill baby drill’.  And in ‘drill and ye shall find’.  Which they did.  And they found.  Oil and gas all over that once thought barren land.  Because they just kept drilling, baby.

Kenya’s find raised less joy in Uganda, where oil was first struck in 2006…

South Sudan, for years the largest oil producer in the region and locked in an oil dispute with Sudan, now wants to send crude out through Kenya on a pipeline to a proposed new port in Lamu (see map). Such a channel could also serve Ethiopia, which shares Kenya’s joy about their joint oil prospects. But their winnings pale next to those farther south. Tanzania has done well out of gold, earning record receipts of $2.1 billion last year, a 33% increase on 2010. It will do even better from gas. The past month has seen the discovery of enormous gasfields in Tanzanian offshore waters. That of Britain’s BG Group is big, Another, by Norway’s Statoil, is bigger. Statoil’s recent gas find alone is estimated to hold almost a billion barrels of oil equivalent (boe).

Happily, Tanzania’s gasfield extends south to Mozambique, where Italy’s Eni last month unveiled a find of 1.3 billion boe, matching similar finds by an American firm, Andarko. With plans to build a liquefied natural gas (LNG) terminal, Mozambique could be a big exporter within a decade. At least the vast and impoverished south of Tanzania and north of Mozambique will be opened up to much-needed investment.

Oil and natural gas everywhere.  Finally a chance for these impoverished lands to develop a middle class.  Who can develop a rule of law.  And government of the people by the people for the people.  Like in all Western countries.  Where the quality of life and life expectancy is higher than in these impoverished east African countries.  Which they can have, too.  If they harness their energy resources.  Create jobs.  And provide the energy a modern economy requires.

Yet the region is not just excited about fossil fuels; a parallel push towards alternative energy is under way. Several east African countries are keen to realise the Rift Valley’s geothermal prospects. One of the world’s largest wind farms is being built in Kenya not far from the new-found oil in Turkana. Its backers say it will produce 300MW, three times the total output of Rwanda.

That is a drop in the bucket for Ethiopia. Its rivers, plunging from well-watered highlands into deep canyons, have hydropower potential. Meles Zenawi, the prime minister, has ordered the construction of a series of dams at a total cost of over $8 billion. The jewel is the $4.7 billion Grand Ethiopian Renaissance Dam on the Blue Nile. This should generate 5,250MW when finished, increasing electricity production in the country fivefold, providing a surplus for export and allowing Ethiopia to open up as a manufacturer.

Wind farms.  Well, when you have no energy that 300 mega watts will be a lot.  But when they build that dam which will produce 5,250 mega watts they can shut down those novelty wind mills.  And put that land to better use.  Perhaps building better homes for that budding middle class.  Businesses.  And schools.  For that dam will be able to modernize their infrastructure.  And bring electricity, and the modern conveniences we all take for granted, into their homes.  Including cable TV.  The Internet.  And smart phones.  Things few subsistence farmers enjoy.

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Falling Oil Prices will lower Gas Prices, if the Fed stops Printing Money

Posted by PITHOCRATES - May 9th, 2011

Falling Oil Prices and you at the Gas Pump

Here’s something you don’t see every day.  Oil prices have fallen (see Special report: What really triggered oil’s greatest rout by Matthew Goldstein, Svea Herbst, Jennifer Ablan, Emma Farge, David Sheppard, Claire Milhench, Zaida Espana, Robert Campbell and Josh Schneyer posted 5/9/2011 on Reuters).

Never before had crude oil plummeted so deeply during the course of a day. At one point, prices were off by nearly $13 a barrel, dipping below $110 a barrel for the first time since March.

Apparently the speculators aren’t all that eager to buy and hold oil right now.  Something must have spooked them.  Because it’s May and the summer driving season is about to ramp up.  People driving around to enjoy their summers.  Some 3-day holiday weekends.  And a vacation or too.  Demand for oil should be up.  Not down.  So what happened?

A routine report on U.S. weekly claims for unemployment benefits spooked investors, showing the labor market in worse shape than expected. That fed a growing pessimism about the resilience of the global economy after industrial orders slumped in Germany and the massive U.S. and European service sectors slowed. Then the European Central Bank surprised with a more dovish statement on interest rates than expected, signaling its wariness about the euro zone outlook. The dollar rose sharply.

Oh.  So that’s what spooked them.  Recession.  Which is another name for continued high unemployment.  Looks like people will be taking more ‘staycations‘ this year.  Just like last year.  Which means people won’t be gassing up the family car for those long trips.  Instead of gas they’ll be buying more expensive groceries.  So the speculators don’t want to buy oil.  Demand for oil will drop.  And something with low demand has a low price.

A range of factors, both economic and political, were also at play. The recent rise in raw goods has been fueled in part by the U.S. Fed pumping cash into the markets by purchasing $600 billion in bonds. This program has pushed interest rates extraordinarily low, making borrowing essentially free once adjusted for inflation. Investors have been using the super-cheap money to buy into commodity markets. But the Fed’s program is slated to end on June 30.

The U.S. Fed in their infinite wisdom printed more money to entice business owners to expand business and hire more people.  Unfortunately, this also created inflation.  Made our money worth less.  And this raised prices.  So we bought less.  And if we’re buying less, businesses aren’t going to expand.  They’re going to contract.  To reflect the falling consumer demand.  So where did all that printed money go?  Wall Street.  Investors borrowed the money ‘for free’ and invested in commodities.  Which drove the prices up.  And oil is a commodity.  Now that the Fed is shutting off the ‘free money’ spigot, they’re not buying anymore.  They’re selling.  Hence the fall in oil prices.

China, the world’s fastest-growing consumer of commodities, also is tightening monetary policy to tamp growth rates and control inflation, raising the prospect of a slowdown in demand for oil.

And one of the big things that triggered the huge run up in oil prices back in 2008, an explosion of Chinese demand, is reversing itself.  They are trying to control inflation.  By slowing their economic growth.  And, of course, slower growth requires less energy.  And less gasoline for cars.

Put all of this together and it explains why oil prices are falling.  Which is typically what happens in a recession.

Recession and Tight Monetary Policy always lowers Gas Prices

The greatest factor in the cost of gasoline is the cost of oil.  Oil goes up and gas soon follows.  Oil goes down and gas follows.  Eventually (see Just say no to $5 gasoline by Myra P. Saefong posted 5/6/2011 on MarketWatch).

Despite Thursday’s drop, crude futures are still more than 9% higher, year to date. Crude oil makes up 68% of the price of gasoline at the pump, according to the EIA.

Overall weakness in the dollar is also to blame for rising gasoline prices. “The U.S. dollar has an inflationary impact on U.S. buyers, while also triggering increased buying in equities and commodities to stave off lost currency value,” said Telvent DTN’s Milne.

And there’s an “overlap” between refinery maintenance and a cluster of bad luck for Gulf Coast and Midwestern refineries, including electrical outages and storm-induced shutdowns, said Kloza. “This is the catalyst for the last leg [of the gasoline-price rise], which may take us to $4-$4.11, but also should soon stall.”

So we’re not going to see a corresponding fall in gasoline prices right away.  But it’s coming.

Still, gasoline prices may hold a $5 average in California, where a strict gasoline formula makes the state more susceptible to higher prices, and in New York, due to tax issues, he said.

Of course, there’s always concern over the start of the Atlantic hurricane season, which begins on June 1, given the potential for disruptions to oil production and refineries in the Gulf of Mexico.

Be grateful you don’t live in California or New York.  At least, when you’re buying gas.  The environmentalists have added about $1 a gallon to the price of gas in California.  And New York is just tax-happy.  Add that to the recent storm damage, heavy rains and Mississippi flooding, prices won’t be coming down anytime soon.  But they’ll be coming down.  Because they always do during a recession.  As long as the Fed stops printing money (which was President Carter‘s problem.  Prices stayed stubbornly high in the Seventies despite recession until Paul Volcker finally tightened monetary policy).

Drill Baby Drill

Supply and demand determines the price at the pump.  That’s why prices go up during the summer driving season.  And down when much of the world is shoveling snow.  Oil is the biggest factor in the price of gas (68%).  Therefore, the less oil on the market the higher gas prices go.  And the more oil on the market the lower gas prices go.  Simple supply and demand.  Which provides a very easy solution to bring gas prices down.  Drill, baby, drill.  The next best thing we could do to keep prices down is to increase refinery capacity.  The more capacities available to refine crude oil the less storm damage will affect the price at the pump.  Finally, roll back environmental regulations and cut taxes.  Californians could easily see a drop of a dollar a gallon.  Even with current oil production and refining capacities.

Energy policy can be very easy if only you can separate the politics from it.  But when your political base is defined by those politics, that ain’t going to happen.  So get use to high gas prices.  Because they’re being kept artificially high for political reasons.  And enjoy your staycation this year.  And next year.

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The Rules of Supply and Demand Apply to Gasoline, Too

Posted by PITHOCRATES - October 18th, 2010

What’s the Difference Between Underwear and Gasoline?

Go through your wife’s or girlfriend’s underwear drawer.  What do you see?  What kind of underwear does she have?  Silk?  Nylon?  Satin?  Cotton?  Chances are you’re not going to see only one type.  There’ll be a little variety.  If you don’t see her get dressed, can you tell what she’s wearing?  Probably not.  The underwear she’s wearing will have no impact on her life.  Whatever she does on any given day will probably be the same regardless of her choice of underwear on that day.

All right, now think about what kind of fuel she puts into her car.  What are her choices?  At best, maybe two.  Far fewer than her underwear choices.  Chances are that she’ll be running her car on gasoline.  If it’s a late model car and she’s a hardcore environmentalist she may be using E85 (an alcohol-based fuel made from food).  However, if she finds herself having to refuel in a bad part of town late at night she’ll probably be switching back to gasoline pretty darn quick.  You see, you just can’t drive as far on a tank of E85 as you can on gasoline.  For when it comes to fuel, gasoline is king.  It packs a lot of energy per gallon.  It’ll let most people refuel on the weekend at that safe gas station close to home.

So what’s the difference between underwear and gasoline?  Choice.  If the price of gasoline goes up, we have but two choices.  Pay more.  Or drive less.  If the price of cotton goes up, we can pay more or wear less cotton.  And when there’s other fabric available (silk, nylon, satin, etc.), wearing less cotton is a whole lot easier.  And that choice will never put anyone in danger.  Like stopping to refuel in a bad part of town late at night.

Market Forces Driving Market Prices

Well, cotton prices are going up (see Flashback to 1870 as Cotton Hits Peak in the Wall Street Journal on line by Adam Cancryn and Carolyn Cui).  Floods in Pakistan and heavy rains in China have significantly reduced the supply of cotton.  And when supply goes down, what happens to prices?  They go up.  How much?

The sudden surge in prices—cotton has risen as much as 56% in three months—has alarmed manufacturers and retailers, who worry they may be forced to pass on higher costs to recession-weary consumers.

Ouch.  56%.  Even gasoline doesn’t go up that much in three months.  But will we, the consumers, absorb that increase? 

For the apparel industry, rising prices have upended roughly two decades of cheap cotton. Consumers have become used to relatively low prices, making it hard for garment producers to pass on the rising costs, especially as the economy struggles to recover.

Probably not.  Why?  Because we have fabric choices.  Wearing something other than cotton is no big deal.  It’s easy to do.  And life will go on just as it did when we were wearing cotton.  We won’t notice the difference.  Which is why it’s hard to pass these price increases on to us.  It’s not the same with gasoline.  With gasoline, we don’t have other choices.  Maybe E85.  But we’ll have to buy more of that to drive just as far so we might as well pay the higher gasoline prices.  At least our wife/girlfriend won’t have to stop to refuel in questionable parts of town.  But cotton isn’t gasoline.  People will buy other fabrics if cotton prices go up.  So manufacturers will look at ways to keep from passing on these costs

The most at risk are discount retailers that compete on price and sell large quantities of cotton-based basic items, such as T-shirts. But clothing manufacturers of all price levels may be forced to decide between absorbing the costs or passing them on. Some say they also are exploring different materials, including synthetic blends.

Because consumers have clothing choices, clothing manufacturers will switch to less expensive fabrics to offer what the consumer will choose.  Gasoline producers can’t do this.  There’s only gasoline.  Sure, there’s E85.  But E85 is not gasoline.  When you choose E85, you get less.  It’s not the same with fabric.  There may be a difference in the feel of cotton and a synthetic blend, but you’re not going to incur additional costs with a synthetic blend (i.e., you won’t have to buy more of the synthetic blend clothing for the same amount of ‘wear-time’ of the cotton).  So the consumer won’t just whistle a happy tune and pay these higher prices.   

Compounding this problem of supply pressure on prices is the demand pressure.

Meanwhile, demand from Chinese cotton mills has shown no signs of slowing. The U.S. Department of Agriculture said China bought 267,700 running bales of U.S. upland cotton last week, more than half of the total bales exported and more than the country usually takes.

The clothing manufacturers may be suffering, but, surely, the cotton farmers must be loving this.  Just like Big Oil must love those high oil prices, right?  Sure.  As long as someone is buying at these prices. 

However, the lofty prices are making some cotton farmers worry.

“I hope it won’t go too high. If you can’t put it into clothes and clothes become too expensive, prices will come down,” Mr. Wilkins said.

And that’s the problem.  As prices go up, we buy less.  When we have choices, we just won’t pay high prices.  And in free-market capitalism, there are always choices.

Drill Baby Drill – If You Want Affordable Gasoline

There are no other fuels to compete with gasoline like there is with fabrics.  But we still have a choice.  We just drive less.  That’s a choice.  Before the great recession resulting from the subprime mortgage crisis of 2008, gasoline had peaked around $4/gallon.  It doesn’t cost that much now.  Prices came down because a lot of people bought less $4/gallon gasoline than they did $2.75/gallon gasoline.  But that price will go up again.  Not because of Big Oil’s price fixing (if they could fix prices gasoline would not have come down from those $4/gallon prices).  But for the same reason cotton prices are going up.  Exploding demand in China. 

Until there is a viable alternative to gasoline, gasoline prices will always be more volatile than clothing prices.  But the laws of supply and demand will have similar affects on each.  A reduction in supply (a poor cotton harvest or a lack of new oil drilling) will raise prices.  An increase in demand (hungry Chinese cotton mills or a growing Chinese middle class buying and driving cars) will increase prices.  Both of these together will really increase prices.  It’s not Big Oil.  It’s not Big Cotton.  It’s simple economics.

How do you make these prices go down?  Well, with little control over the Chinese economy, our only choice is to increase supply.  And when it comes to gasoline, that means we need to drill more.  The more oil we pull from the ground the more we can refine.  It’s just simple economics.

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