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Sunday, December 26 2010

If you're like me, you bristled when you saw a 20 cent jump in the price of gas overnight.   TheOldSalt covered this well earlier, but there's one other factor to throw out, namely China.  During the 2008 Summer Olympics in Beijing we saw a dramatic spike in gas prices.  There wasn't a lot of rhyme or reason but the American people were sure up in arms to see prices rise to historically high levels.  The mantra then was to blame "big oil" for price gouging.  In reality, though, there was another factor in play. 


 

With the Olympics in Beijing, the Chinese wanted to make a big splash to the global community.  This was their chance to assert themselves as a major player in world politics.  There was one potentially devastating propaganda nightmare.  For the months and years prior, the talk preceding the Olympics was the fact that environmental conditions were abysmal.  Air quality was so bad in Beijing that Olympic athletes contemplated wearing face masks (a few actually did).  To avert this potentially hazardous (quite literally) situation, China converted their factories from coal based (which emitted tremendous amounts of particulates and smog) to petroleum based.  For a city the size of Beijing and a country the size of China, this translated to a massive transfer of resources.  To make this transition, China purchased enormous quantities of oil.  The market reacted to this run on oil by raising gas prices to unprecedented levels.  After the Olympics, China returned to their much cheaper coal based production.  You may have noticed that gas prices also returned back to earth. 

 

So what's going on now.  I noticed just yesterday an AP report that China has been facing energy shortages from their coal plants.  It is a very real possibility that they are going to return once again to petroleum based production, but this time out of necessity.  The long term implications of this are that gas prices will rise and continue to rise over the not so distant future.  Couple this with inflation and regressive energy policy that has prevented us from increasing our domestic supply and the rise could be dramatic.  I wouldn't even be surprised to see talk of rationing like some previous president we have all come to know and love (Jimmy Carter).  Hold onto your wallets, everyone.

Posted by: Joel Harris AT 09:40 am   |  Permalink   |  0 Comments  |  Email
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