My Take on Gas - oline
It seems like everyone today is complaining about the high cost of gasoline. Everyone except city-slickers like me who enjoy the freedoms of being sans vehicle.
Over the past 6 years, the cost of a barrel of oil has risen from around $20 in 2000 to the $70 range of today. Gasoline, a derivative of crude oil, has followed suit and is drilling a hole in the pockets of American drivers.
The reason for the rising costs is simple supply and demand, Economics 101. We drive bigger cars and use more gas. As a result, we demand more energy so the price continues to rise. This is a fact that many are quick to ignore. Instead, drivers want to blame the government for reasons I do not understand. The government aims blame at oil companies simply for being profitable (isn't that the goal of a market economy?) and in turn labels the American producer of oil, the giver of life to SUVs, the evil empire of our prospering economy.
I can understand why someone would blame a corporation for high prices, but it is still an incorrect assumption. Oil companies do not determine prices. This is done by energy traders who try to predict which way the price of oil will go. For the most part, energy companies like Exxon buy this and process it and sell for a mark-up to cover their costs.
Its true that oil companies reported record profits this year, but that doesn't they are gouging the consumer. The Economist justified this today in an article, "The understandable ire comes from a basic economic error: consumers observe that the oil that producers were already pumping is not costing them any more, and therefore conclude that they shouldn'’t be making higher profits on it. But high prices are what brings new supply onto the market-supply that wouldn'’t be cost effective to pump if oil cost less than $72 a barrel. This gives oil companies a windfall on the oil that is cheaper to pump, but it is not gouging." Oil companies don't pocket profits either. These monies are used in higher risk investments to produce more oil and gas.
For what its worth, Ben Stein had an article today that suggests, "if we want to blame anyone... maybe we should blame ourselves for the oil pinch." All of this is to say, if Americans want lower gas prices, the consumer needs to lower their consumption and allow supply to catch up with demand.
3 comments:
I couldn't agree with you more. Big oil follows the law of big numbers...billions of people consume gas/oil every day, so it stands to reason that their profits would be huge. Having said that, conservation is a good starting point, but I think we need to do more: open up ANWR? It would certainly reduce our dependence on foreign oil and increase supply as well.
ANWR is a very controversial. I haven't exactly decided how I feel about it yet.
Like I said, I'm all for conservation and also for the slow transition into alternative fuels. I don't think there will be a giant step back into the days of $1.50 gas, but curbing our energy usage and new fuels will help stabilize the price where it is. I too wish we didn't depend on foreign oil.
All good points.
I would add that opening ANWR doesn't have to be a magic bullet to solve all our oil needs. It just has to provide an additional source of oil to the world supply that will force OPEC and the futures market to contend with.
When the North Sea production came on line it helped lower global oil prices for the same reasons. An additional major source of supply forces the entire market to react to stay competitive.
The more of our own oil we can bring on line the more likely world dictators and monopolies will have to lower their prices to stay competitive.
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