8-8-08 by dugan
So what’s the price of corn these days? A little above $5.00 a bushel. It’s down about 28%, even more than the 21% drop in the price of crude oil (from over $145 a barrel to $115 after another big drop today.) Both are still way above a year ago, but the matching downward trend signals what was really driving the price of corn–it sure wasn’t just, even mostly, ethanol from corn. But what about gasoline? If it was also matching the drop in crude oil, we should shortly be paying about $3.48 at the pump. Why does that seem so unlikely?
Nationally, the average price for a gallon of regular gasoline today is $3.836, down just 6.7% from its peak. With crude oil comprising more than 70% of the price of a gallon of regular, and all other things being equal, gasoline should be dropping by three-quarters of that 21% fall in oil prices, to about $3.48 at gallon. Some analysts are predicting $3.50 a gallon by Labor Day, which would only catch up gasoline to today’s price.
Oil companies will seek higher profits on refining oil into gasoline as their oil profits dip. It’ll work if friends of oil in the White House and U.S. Senate keep blocking even the renewal of tax credits for wind and solar power, much less cancellation of oil companies’ profit-boosting taxpayer subsidies and addition of controls to prevent another oil market fever.
The oil lobby is counting on short memories and tens of millions of dollars in political funds to keep any vigorous energy policy at bay. Since the 2004 elections, the oil and gas industry has grown from the 14th-largest to the 5th-largest lobby in Washington, on track to spend at least $110 million this year. It has placed its bet on Sen. John McCain, who as recently as May said he opposed subsidies for solar power, though he favors them for nuclear power.
So even though we now see that the price of corn was tied to the price of oil, not ethanol, and that $145 oil had more to do with computerized trading schemes than supply and demand, and that the only way to prevent a repeat is less dependence on oil, we’ll have to keep our government from forgetting it all.