South China Morning Post
April 27, 2006 Thursday
Oil-addicted Americans feeling the pinch at the pump
Anger at rising travel costs is fuelling a political row as the US
pays the price for its excesses, says Markus Gaertner
Karapet Galajyan is angry. “This is crazy,” the Armenian-born taxi
driver complained as he rushed his passenger from the Los Angeles
International Airport to a glitzy Beverly Hills hotel.
While navigating the congested six-lane Highway 405, Mr Galajyan
recalled his latest painful experience at one of the city’s countless
petrol stations. The 42-year-old had just filled the tank of his
minibus taxi, paying US$3.19 per gallon – 16 per cent more than he
paid a month ago.
The average price for regular unleaded petrol in the US is now
US$2.91, and over US$3 per gallon in Washington DC, Los Angeles and
New York, according to the American Automobile Association (AAA).
“How am I supposed to feed my family?” asked Mr Galajyan. “Each time
I stop at a petrol station, the prices have gone up again.” After oil
prices reached an all-time high of more than US$75 per barrel on
April 21, the “pain at the pump” seems to have reached a climax for
the oil-addicted Americans.
Escalating prices have sparked public outrage, prompted a
mud-slinging match between Republicans and Democrats in Washington,
and put oil executives back in the hot seat. US news channels are
dedicating almost as much coverage to the public outcry as they did
to the Iraq war in the early stages.
Incidents of consumer anger have made headlines across the country,
including the killing of a petrol station owner in Alabama last week
by a driver attempting to steal US$52 worth of petrol.
Across the country, drivers are scouring the internet for the
cheapest petrol stations. The online competitive intelligence service
Hitwise reported that, in the past month, searches for
petrol-price-related terms have risen by 300 per cent.
Search words such as “electric cars” registered increases of up to
2,900 per cent. Websites such as are reporting
dramatic traffic increases.
Americans are increasingly switching to public transport. Washington
DC’s Metrorail, the capital area’s train system, had the
sixth-busiest day in its history last Thursday. In Salt Lake City,
passenger numbers are up 50 per cent on the 30km light-rail system.
Pawnshops report much higher traffic with customers who need cash for
the petrol pump.
The relentless surge in prices is not only threatening to exhaust US
consumers. It has become US President George W. Bush’s latest
headache and the hottest topic for the mid-term elections later in
the year. The timing couldn’t be worse, with the entire House of
Representatives and one-third of the Senate facing elections in
November.
In the past couple of days, Democrats, who are the minority in both
chambers of Congress, made high petrol prices the subject of their
appearances. Last Saturday, Senator Bill Nelson of Florida said in a
weekly radio address that the president’s policies amount to
“billion-dollar giveaways to the oil companies”. Democratic Senator
Charles Schumer from New York called the surging petrol prices a
“wake-up call” for America.
Republicans were quick to respond on this emotional and sensitive
topic. House Speaker Dennis Hastert and Senate Republican leader Bill
Frist sent the president a letter on Monday, calling on him to
conduct an intense investigation into whether there is any
price-fixing, collusion, gouging or other anti-competitive practices.
Mr Bush has offered remedies to the situation on national airwaves
almost daily since the oil price reached its record high. On Tuesday,
he announced that he would free up oil that was added to the nation’s
emergency reserves and waive rules that were creating bottlenecks in
US petrol markets.
The Strategic Petroleum Reserve, located in salt caverns deep
underground along the US Gulf coast, serves as an emergency supply in
the event of a sudden disruption from producers or refiners. The
government has been adding an average of 25,000 barrels of oil per
day to the reserve so far this year. The US imports about 10 million
barrels a day.
Democrats blasted Mr Bush after his announcement. Congressman Eliot
Engel, a New York Democrat, said the president “offered a piecemeal
approach”. Mr Bush also ordered the Justice Department to check for
possible price manipulation.
Last weekend, he visited California, home of the highest petrol
prices in the nation, in order to promote his initiative on
alternative fuels. Mr Bush again branded America’s oil addiction as
harmful to the economy and national security. The US needs to import
60 per cent of the oil it consumes.
After some months of relief, oil executives, who were questioned
before a joint Senate committee hearing on energy prices after
Hurricane Katrina hit New Orleans, were back in the hot seat. The
combined 2005 earnings of Exxon Mobil – the world’s biggest oil
company – BP, Royal Dutch Shell, Chevron and Conoco Phillips topped
US$111 billion. In an April 6-9 Washington Post/ABC News poll, 70 per
cent of US adults said the recent petrol price increases were causing
them financial hardship.
The outrage over oil and petrol prices is more than just another
embarrassing subject in a scandal-ridden presidency.
“Record-high petrol prices are enforcing a growing sense that this
country is headed in the wrong direction,” said David Gergen, an
adviser to five former US presidents. Already widespread anger over
the administration’s handling of the Iraq war and the latest efforts
to criminalise illegal immigrants have sent the president’s approval
ratings to new lows.
“We’re going to have a tough summer,” admitted even Mr Bush, who
warned consumers last weekend that prices were likely to go even
higher in the coming months.
The high prices are also threatening US industries that have been
struggling for years. Two of America’s five biggest airlines, Delta
Air and Northwest, are in bankruptcy proceedings. Delta filed for
Chapter 11 bankruptcy protection last September and has tried to
eliminate US$1.9 billion in annual costs. The company has had US$12.3
billion in losses since 2000.
High petrol prices have also deepened the crisis of Detroit’s leading
automobile companies. They slashed sales of General Motors and Ford’s
petrol-guzzling SUVs. General Motors CEO Rick Wagoner is struggling
to recover from a US$10.6 billion net loss last year after Toyota and
Honda increased sales. General Motors’ share of the US market slid to
26.2 per cent last year, the lowest since 1925. Last year, for the
first time, Toyota produced more cars in the US than General Motors.
The petro-political fears are sparked by several factors.
Contributing to the record prices is the instability in the Middle
East and uncertainty over supply from oil-rich nations. Supply
concerns in Nigeria, still recovering from an uprising among farmers,
are another factor. Increasing competition from China and India has
contributed for some time already.
Independent oil experts such as energy trader Boone Pickens are not
sure whether the oil price rage will calm down any time soon.
On Tuesday, Mr Pickens said at the 2006 Global Conference, organised
by the Milken Institute in Los Angeles, that for the foreseeable
future demand for oil would outpace supply because production could
not expand beyond 85 million barrels a day.
The reasons for that, according to the hedge fund manager from
Dallas, are dwindling reserves and a big question mark over new ones
with significant size.