American Automobile Association

What’s up with prices at the pump and why it could be a good sign

Commentary by Marita Noon

All of us loved less-than $2 a gallon at the pump. AAA reports: “Americans paid cheapest quarterly gas prices in 12 years” – which resulted in savings of nearly $10 billion compared to the same period last year. However, oil (and, therefore gasoline) has been creeping upward since the February low – topping $45 a barrel, a high for the year. And that could be a good thing.

While low prices at the pump have been a boon to consumers, the plunge in oil prices has been a bust for American producers.

You may not care about “big oil,” but there’s still reason to be positive about the rising prices.

There are several causes for uptick. First is the weaker U.S. dollar. As oil is traded in dollars, a weaker dollar means that it takes more of them to buy the same amount of oil.

Additionally, we are heading into a busy summer driving season and refineries are switching to the more expensive “summer blend.” The switch typically means a brief shut down for maintenance – which reduces the gasoline supply. Summer driving increases demand.

Globally, oil production is down due to a workers’ strike in Kuwait that took about 1.3 million barrels a day of production offline, and disruptions in Iraq, Nigeria, Venezuela, and the North Sea. Former investment advisor and financial writer Tony Daltorio writes: “That brought the total to roughly 3 million barrels a day that were offline.” In the U.S., according to the Wall Street Journal (WSJ), “oil production has fallen below 9 million barrels a day in recent weeks, down from a peak of 9.7 million barrels a day last April.”

These are all supply issues that can easily be eradicated with increased production – such as recently threatened by Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman. Additionally, in the U.S., reports Bloomberg: “Drilled, uncompleted wells could return 500,000 barrels a day back to the market.” The potential for increased production has many, including Daltorio, predicting a fall in price from current levels.

Consumers like lower prices, but they signal economic concerns as the price of oil is directly connected to the global economy.

In February, a Citibank strategist warned that due to the extended oil price collapse, the global economy “appears to be trapped in a death spiral.” Eric Sharpe, Publisher at Energy Ink Magazine, states: “Citi’s assessment is clear, and easy to understand: weak global growth results in continued depressed oil prices as demand weakens under over-supply.”

This is why I posit higher prices are a good thing for everyone, not just the oil industry.

Simple economics are based on a supply vs. demand formula. So far, I’ve mostly addressed the supply side. But a careful read of the forecasts indicates an increase in the demand side. Sharpe points out: “The single most important factor for the stabilization of oil prices is for demand to outpace growth which it has not done for over two years. Though demand growth is slow, it is still climbing.”

On April 23, the Financial Times reported that commodities, led by oil, rallied “on signs of stronger growth” that bolstered demand. It also referenced: “better housing and infrastructure demand after China’s economy rebounded in March.”

On April 27, in a story about the price of oil hitting “another 2016 high,” WSJ addressed the fact that the Federal Reserve officials “left interest rates unchanged.” The last time the same decision was made, the statement included language that indicated the global economic and financial conditions posed risks to their outlook. This time, that was removed – “signaling less concern about risks posed to the U.S. Economy by global financial conditions.” In WSJ, Robert Yawger, director of the futures division at Mizuho Securities USA, is quoted as saying: “The elimination of international elements in the language may mean that the market feels that the international situation is improving, and we’ll get a bit of demand from emerging markets which wasn’t there.”

Additionally, Phil Flynn, Sr. Market Analyst at the PRICE Futures Group, in his daily energy report, on April 22, wrote: “Demand is busting out all over.” He explains: “Low gas prices are causing a buying frenzy at the pump as gasoline demand in the month of March hit an all-time record high.” He continues: “it’s not just gasoline demand, it is oil demand all over. Not just here in the United States but also in China. China reported that crude-oil imports in March were up a whopping 21.6% from last year coming in close to 7.7 million barrels a day. …China’s demand for imported oil is stronger than it has ever been.” He also addressed; “the strongest ever volume increase in Indian demand.”

There is growing demand.

“The market is coming in better balance,” Jason Gammel, an analyst at Jefferies, stated, according to the WSJ. “We maintain the view that the current oversupply will flip into an undersupply in the second half of the year.”

While this is good news for the oil industry, it is also good for everyone – even though it means higher prices at the pump. If this optimistic view is correct, it means the global economy – despite the bad economic news on the American front – may be heading toward a net positive; that it is not “trapped in a death spiral.”

A growing economy needs energy and that is why higher demand – that equals higher prices – is good for everyone.

The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc., and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). She hosts a weekly radio program: America’s Voice for Energy – which expands on the content of her weekly column. Follow her @EnergyRabbit.

AAA backs Question 1. But I don’t and here’s why

Thousands of AAA members across Maryland received an e-mail blast encouraging them to vote for Question 1. In it, the group’s VP for public and governmental affairs, Catherine Rossi, writes in part:

Over the last few years Maryland elected officials have “borrowed” over $1.5 billion dollars from your gas taxes, vehicle registration fees and other sources that were intended for local transportation improvements. Unfortunately, over $1 billion was never repaid and as a result, many local transportation projects have gone unfunded.

Year after year, many of our roads and bridges have been rated poor or in sub-standard condition, as Maryland motorists face some of the worst traffic congestion in the United States. While the State has a long list of state and local projects that would help improve safety and mobility and reduce congestion, these projects could all be derailed if Maryland fails to protect the Transportation Trust Fund, which is why it is so important that you vote FOR Question 1. (Emphasis in original.)

While it’s a compelling argument and outlines the principle of the problem, where I take issue with Question 1 is the substance.

But let’s begin by looking at the other source of the road funding problem. In 2012 it was noted that mass transit takes up 48% of the highway budget, compared to 23% for roads. Simply reversing that proportion would likely have alleviated the need for the additional gas tax passed in 2013 – a gas tax which may provide less income than expected because prices have retreated below $3 a gallon for the first time in a few years. Unfortunately, powerful political interests wanted to construct some useless light rail lines so it looks like we’re going to get them.

And those powerful political interests have enough allies in the General Assembly to make a “lockbox” comprised of a 3/5 majority all but worthless. In actual numerical terms, that’s 85 House members and 29 Senators and as long as the majority party exceeds those numbers there won’t be any sort of taxpayer protection in the TTF.

I know there’s an argument that says I shouldn’t let the perfect get in the way of the good, and just having a lockbox is a good step – basically echoing the AAA contention. But to me voting no sends a message that the proposal is not good enough. We should hold out for a “lockbox” of at least 2/3 – I’d prefer it to be 3/4, meaning that at least some GOP votes would be required. If we pass it this time, the issue will never be revisited, I guarantee it.

If I could trust the majority party any farther than I can throw it, that would be one thing. But I’ve seen the definition of some things they consider “emergency” legislation and there’s potential for abuse here.

If you’re messing with the Maryland Constitution, you should at least do it right. Vote NO on Question 1.

And now a programming note. Instead of burying my forum coverage on a weekend, I’m going to look back at that Monday through Wednesday – just in time for early voting. Tomorrow I have a music review slated and Sunday I’ll detail a special event I attended Thursday night.

A surprising voice speaks out

I have been a AAA member for many years, stretching back to my time in Ohio. Sure, they send me a lot of solicitations because I’m on their mailing list and quite honestly I can’t recall ever needing their services. But they may be key allies in one fight if we can nudge them over just a little bit more…

Dear Michael:

Enough is enough! Many of Maryland’s speed camera programs are out of control. We’ve seen motorists in stationary vehicles get speeding tickets. Some jurisdictions have created “school zones” where there are no schools to operate speed cameras solely for profit. Baltimore City’s cameras were so riddled with problems that they were shut down. We need your help to stop the abuses of these poorly run programs and to put the focus back on safety – not making money.

ACT NOW to help us get these programs fixed in 2014 by visiting the AAA Issues Action Center and sending a letter to your local Maryland legislators. Tell them that they need to finish the job they left undone in 2013 and that you want fixing Maryland’s automated speed camera enforcement programs to be a priority of the 2014 General Assembly! Help us protect you and all Maryland motorists from the abuses of the revenue-focused speed camera programs.

Lawmakers will be back in Annapolis on January 8. Now is the time to tell your representatives that speed camera legislation reform must be a priority in 2014!

Thank you for your time and for being a valued voice with AAA. (All emphasis in original.)

They are so, so close to getting it, but they just can’t pull the trigger and say what really needs to be said – “we advocate a full repeal of this misguided law which isn’t about safety, but about revenue.” The word is not “reform,” it’s “repeal.”

If safety is really the issue, we should constantly hear about accidents between pedestrian school children and motorists throughout Maryland. Truth is, though, speed is rarely a factor in these accidents. This is from the Chicago Tribune:

The most common cause of the vehicle-pedestrian accidents was listed in police reports as drivers failing to yield, accounting for 4,284 of the 16,469 crashes over the five-year period that Chicago police reported to IDOT.

Only 117 of the crashes were attributed to driving over the speed limit, police reports show.

The city earlier this month completed initial testing of controversial speed cameras near two schools and two parks. (Chicago mayor Rahm) Emanuel’s administration is counting on raising at least $20 million from tickets issued to drivers by speed cameras to help balance the 2013 budget.

Emanuel has said he wants to protect children by setting up about 1,500 “safety zones” within one-eighth of a mile of schools and parks. Twelve safety zones were created last year and 50 more are scheduled this year, CDOT said.

But the relatively small number of speed-related crashes between vehicles and pedestrians raises questions about whether the streets around schools and parks are more dangerous for children than other locations and about the potential effectiveness of the speed camera technology to make streets safer where kids are present.

Even if you assume a portion of the sloppy reporting is because investigating police aren’t tabbing the speed of the driver, it’s unlikely that speed is the leading cause of these accidents. Apparently it would be better for that purpose to have a patrol car watching for drivers who are on their cell phones or otherwise being inattentive. But that’s just too hard, and it’s obvious Chicago is looking for the money, to the tune of $20 million.

So it’s disappointing that AAA is taking such a milquetoast stance on this issue when speed camera manufacturers are spending thousands of dollars in Maryland to counter any anti-camera legislation, in order to protect their slice of the pie. Remember, a significant portion of the fine paid by drivers goes to the camera operator.

And that’s why, even well after school hours or even on days when school’s not in session and no children are anywhere in the immediate vicinity, the speed cameras continue to operate. The moment the potential revenue stream was legalized by the state was the moment we heard the “safety” gimmick as an excuse for yet another cash grab by desperate local governments. If you’re a AAA member, tell the group that reform isn’t enough – only repeal of the scamera law will do.