Rolled Out On: 6/13/2008 9:27 AM

I disagree.

Gasoline use is not something that can be turned off or turned on at will. If someone bought a gas hog SUV when gas was $2 a gallon, most people can't just stop using it (you gonna quit working?) Some people can switch to mass transit, but relatively few. Most people can't just go out on a whim and buy a new car that gets better gas mileage and most people won't right away in the hopes that the prices will come back down.

It takes time for something as intertwined with our lives like gasoline to begin impacting our lifestyle. It is just now starting to hit full swing. As people buy new cars, they buy more efficient ones. When people who are in the market for new homes make their decisions, commuting distance becomes a larger and larger part of the decision.

Those who can use mass transit are doing so in large numbers. I can't tall you how many SUVs and big trucks I've seen with "for sale" signs in the windows over the past month or so.

$4 gas is definitely having an impact on demand and on the oil companies' sales volumes.

Gas is not something that we can just decide to stop using and do without. Our entire economy, both nationally, and on a personal level, depends on our mobility. Gone are the days when your place of business is the same place you live and anyone who isn't within walking distance of a grocery store grows their own food.

Besides, you ignore the effects of competition. If the costs of production decreased (by increased capacity and domestic exploration, for example), the companies with smaller market shares will begin lowering prices to improve sales volume. The bigger guys will follow suit to prevent losing sales volume, and the prices will decrease. That's the beauty of free market competition. Absent a monopoly or collusion, prices are not solely dependent upon what WE'RE willing to PAY, but also upon what the lowest common denominator is willing and able to sell it to us for and still make a profit.

The problem is that, barring a significant change in the attitudes in Washington DC, there is little hope for decreasing the costs of production of gasoline any time in the near (or far for that matter) future. The only driver of the market right now is demand. That can be reduced somewhat by more efficient vehicles, shorter commutes and mass transit...but only somewhat. Without further development of our resources, you're absolutely right about the prices. They'll never go down. But it doesn't have as much to do with our "willingness" to pay a particular amount as it does with production costs and demand.

Rolled Out On: 6/13/2008 11:24 AM

The problem lies not with the oil companies, but with the commodities traders who set the price on the world market. They have shown that they can get oil at $120/bbl, and they will continue to raise the price until they hit the price point.

Which is one reason why drilling at home will not help us unless we can control the price/bbl.

Rolled Out On: 6/13/2008 1:52 PM

Ha! I stopped driving my truck in the city and switched to a scooter. I went from 16 mpg to 60 mpg on a $1000 vehicle. I use to consume 1 gallon of gasoline going to and from work each work day. Now it takes me about 3 days to consume one gallon of gasoline. The wonders of a free market huh?

The only way prices will drop if supplies of gasoline increases or demands drop or a little of both. As gasoline prices increase maybe the margin for creating a new oil refinery will be more lucrative. This will cause supplies to increase and prices to fall.

Rolled Out On: 6/13/2008 2:32 PM

Kevin, only if, like Sailorcurt alludes to, smaller markets are able to get into the game. Even then, the price for oil isn't going to drop because some other refinery can process it as the demand for the crude will rise (more people asking for it). What you'll see is the margin for gasoline dropping which isn't going to be 50%.

Gas prices may drop a few cents. Maybe hit $3.65 or so at best case scenario. But that's it. The global market says "we'll pay X for a barrel", unless someone starts pumping out a bajillion barrels a day, that's just not going to go down too much.

I'm ok with this. The market is responding and resources are being allocated appropriately. Yes, we need fuel because we've assumed it was always going to be cheap (and it still is, relatively speaking) and failed to take the possibility of unaffordable fuel costs into consideration. What do we do when corn is $8 an ear because it costs so much to ship from Wyoming? Watch local growers start popping back up.

However, I'm betting that before that happens, someone finds an energy source that, while not as cheap as $1.75 gasoline, will prevent that from happening. But if it does, then there's not much we can do about it 'cept start farming our own yards. Which isn't a terrible idea anyway.

Rolled Out On: 6/13/2008 2:43 PM

Drill in ANWAR, drill off the coast in Santa Barbara - drill every damn where and sideways off China. The margins are already there it's the damn stifling eco-regulatory California-crap that's in the way.

Rolled Out On: 6/13/2008 2:58 PM

DC, I agree, we should be doing this. Because of the enviro-weenies, the supply has been artificially limited, hence the increased costs. However, the costs associated with drilling and exploration as they stand today coupled with the NIMBY principle make me believe gasoline has reached its fair market price for a stable enough period that alternative energy sources will be brought in before oil production can be increased to a level that would cause the price to drop.

Me and my 20 gallon gas tank pray I'm wrong, though.

Rolled Out On: 6/16/2008 11:05 AM

Agreed. Not gonna happen. Mexico will be a net importer of oil by 2014. There goes one out of every eight barrels inbound to the USA.

I have very little sympathy. After we lived through the misery of the Arab embargo and the Carter years, we forgot everything we ever knew about MPG as a country and drove big freaking cars as fast as they could go. Now a non-renewable resource costs more! Who would have ever thought that could happen????

To the point that we should be drilling: yep. We should be. At the end of the day, doesn't change the fact that there's more demand for oil than available production. We are at the brink of a very different lifestyle. Drilling ANWR might ease the transition, but it won't change the inevitable outcome.