OPEC slashes supply

Watch for oil prices to pop soon, ending the recent nosedive.


Thomas Schaller
December 18, 2008 12:28AM (UTC)

Two weeks ago I sent an email to friends and family proclaiming that I had paid $1.79 per gallon for gas to fill my tank. More recently, I've seen the retail price (87 grade) down to $1.34 in the Baltimore area. It's quite stunning to think that it was no long ago that the first digit in gas prices in some markets was a "4."

Desperate to raise the per-barrel price of crude, OPEC countries are slashing supplies, as the AP reports today.

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Though markets have initially refused to budge, and even have fallen lower for the barrel price, eventually the market has to respond to decreased supply with higher prices . . .

. . . that is, if demand remains constant. But demand has been dropping because Americans (and other global consumers) are being smarter about their consumption. Which, in large part, is to say more conservative -- and thus conservationist -- in their driving habits. Heck, Americans drove 100 billion fewer miles (yes, 100 billion) between November 2007 through October 2008 than in the comparable period the 12 months prior.

I know nobody wants to hear it, but in theory this would be an ideal time to raise the federal gas tax. For years, politicians said American consumers would never pay more than $3.00 for a gallon of gas, and they ended up paying more than $3.00 and even $4.00 per gallon. Not happily, of course, but they paid it. Because of their unhappiness with paying that much, and yes, tough financial struggles for many to pay such high prices, we altered our behavior. It would keep demand low, but instead of putting that extra 25 cents or 50 cents into the pockets of some less-than-democratic regimes, we could be channeling the money into infrastucture back home.

But there is obviously no political impetus or political will to raise the gas tax. It would be political suicide for Barack Obama and the Democratic leadership in Congress, providing just the sort of opening Republicans are praying for. Even if they figured out some way to make it progressive (e.g., by passing along with the increase a gas tax credit for individuals or families earning below a certain level), that part would be ignored and holy hell would be raised.

But at $1.34 a gallon, gas is again cheaper than water at retail. (That's right: The 16-ounce, $1.50 Aquafina bottle you bought while your tank is filling equates to $12/gallon for something that falls from the sky.) A small gas tax right now could produce billions for new federal projects, mortgage subsidies or, if nothing else, a smaller deficit. And it would induce some of us to continue behaving next year in the ways we did this past year.

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Thomas Schaller

Thomas F. Schaller is professor of political science at the University of Maryland, Baltimore County and the author of "Whistling Past Dixie: How Democrats Can Win Without the South." Follow him @schaller67.

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