Monday, April 28, 2008

Oil Price Options

As I drove to my home town and back this last weekend I put just shy of 2000 miles on my vehicle. As I drove I could feel my wallet lightening as the gas tank was filled time and time again. Truck drivers are hitting Washington and people are finally begining to get fed up with the price. So what options have we?

I've been thinking about this, and realistically I see 3. Here they are;

1. Consume less.

About a year ago, when prices hit 3 dollars a gallon, I said that people wouldn't actually drive less until prices hit 5 to 6 dollars a gallon. Maybe I was a bit high in my estimation. Are you actually driving less or are you still just complaining? I fall in the second catagory. In addition to you doing your part you must realize that oil is a global commodity. If we comsume less and China's usage continues to grow we have gained nothing.

2. Procure more.

The easiest way to do this is to drill our own. It is the only way we can truely control the supply end of supply and demand. In the past we had bargaining power with OPEC. If we didn't like the price we would tell them to increase production, or we would go elsewhere for our growing demand. Presently there are other industrialized countries willing to purchase at the price requested.

3. Develop alternatives.

This is really a part of number one, using less. If we are to develop viable substitutes we are going to have to give something up. Horse power, travelling distance, comfort, space, speed, safety.. etc. As I see it, most people as of now are not willing to give anything up. Or at least not enough to make these new cars practical. Some people will say that it is a conspiracy by the oil companies. Let me assure you. If there were tons of money to be made making those vehicles, someone would be doing it. If you think I'm wrong, then you should do it. You'll be rich.

Wrong assumptions.

1. It's the governments fault.

60 cents of every gallon goes to taxes. If you would like the government to stop adding those to the price thats fine. Roads will fall into disrepair or they will find another place to make up for the 60 cents. Either way it is not a good solution to the problem

Part two of that I've covered some. We have lost our bargaining power to other growing and industrialized nations.

And part three is for those of you who blame the President or Vice-President. If you think the president controls the price of gas then you have no grasp of how the market works and your arguements are not even to be considered.

2. It's the oil companies fault.

They are out to make a profit. Share holders demand they make money. If they don't the CEO's will be replaced. This is how a free market economy works.

They have a smaller profit margin than almost any other product on the planet. If you think it can be done cheaper then you should be distributing it yourself. Charge less, people will buy from you, and you'll still make a fortune.

3. Price controls.

The problem with price controls is that demand sets the price. If you set the price then demand will increase and you will begin to see gas shortages. There will be lines at the pump, and you will start to see usage limits placed on individuals and business. Hurting our economy and not solving the problem.


I don't like the situation any more than you do, However our options are pretty clear. You either have to accept the cost or be willing to do something about it. That may include drilling near your home, being forced to use less, or give up the features you love in your vehicle in favor of cheaper transportation.


Mookie said...

One of the price issues, as you stated is that it is a publicly traded commodity. And just like the stock market, bad news creates a bit of fear, the price goes up. If everything is okay in their world for the moment it will go down. Plus, it can be manipulated slightly by individuals who choose to drive the price up, somehow... that's how we originally crossed the $100/barrel threshhold. Here's another thing to think about. The prices we here right now are on oil futures, so we haven't even begun paying the correlating price at the pumps yet..wait about two months and we'll see the conversion.

Jeff Myers said...

I have mixed feelings about all this. We are definitely trying to drive less. That's our only real solution right now. Especially since I live in Northern CA and we're paying close to $3.90/gal.

There's a part of me that wishes the price would go ahead and just get out of control. This would force the hand of the alternative fuel/energy issue. The cleaner, more efficient technologies are out there. There's just not a clear demand for them yet. The ceiling on this may be higher than we think. Europeans have been living with uber-high gas prices for a long time. When we were in Scotland last year it was about $7-$8/gallon.

DeadMule said...

You don't think George W. Bush is in be with the Oil Companies? How is it not the government's fault?

All In said...


Please describe for me in what way GWB is "in bed" with the oil companies. Be specific please.