There's No Such Thing as a Gas or Oil Shortage

First the good news: Automotive expert Ed Wallace says there's no gasoline or oil shortage in the U.S. today and near-record reserves are on hand.

Now the bad news: Not only has the congressional mandate for ethanol jacked up the price of food, but Washington, Wall Street and fuel producers all want you to think the gas and oil shortage they keep talking about is real.

Washington, Wallace says, appears to be protecting oil speculators and ethanol producers rather than the interests of U.S. citizens who will ultimately pay higher prices for food and U.S. farmers, who are already staggering under increased animal feed costs.

Just one example: Pilgrim's Pride, the country’s largest poultry processor, recently announced it must lay off 1,100 employees, close one processing plant and six of its 13 distribution centers, all because its costs for chicken feed went up $600 million last year and was on track to increase by even more this year.

"They see speculation in the market, I see decline in global inventories,” Energy Secretary Sam Bodman told Bloomberg, adding that pushing up the prices of corn and animal feed for farmers is "nowhere near as important as trying to relieve pressure on [gasoline] supplies.”

The fact is, Wallace counters, that U.S. gasoline reserves are at their highest levels since the 1990s and have risen steadily since last October and oil reserves have gone up virtually every week this year.

That’s pretty amazing when you consider refineries have been scaling back production as their profit margins decline.

Editor’s Note: Why Oil Prices Will Go Much Lower After November Election. Best Ways to Profit Now.

According to Valero Energy CEO Bill Klesse, poor margins in recent months caused Valero to cancel planned refinery expansions that would have produced 500,000 more barrels per day.

"Refiners cut gasoline production, yet gasoline reserves have grown to their largest since late 1992,” Wallace comments. "Why is Washington insisting there’s a supply and demand problem when none exists, and that speculators aren’t responsible for the rapid oil and gasoline price rises when it’s clear that they are?”

Gas prices continue to rise even though petroleum usage has been declining since last July.

The U.S. used 4 percent less petroleum this January than in January 2007. Oil demand dropped by 3.2 percent in February. Worldwide oil production rose 3.5 percent during the first quarter — outstripping growth in worldwide demand by 1.5 percent — and is expected to increase by 3.3 percent during the second quarter by as much as 4.1 percent during the third.

Investment in oil futures, Wallace notes, has risen from $9 billion in 2000 to $250 billion today. Any publicly traded company with $241 billion more share investment would see its value soar even if it had no where near that much in market cap.

In addition, even though the dollar has dropped 30 percent since 2002, the price of oil has risen by 500 percent.

"Is it the weak dollar that has caused a 500 percent increase in the price of oil, or is it the extra $241 billion worth of speculation?” Wallace asks. "You can make the call on that one.”