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Wednesday, March 19, 2008

Why are gas prices so high?

Well, once again, the same tired e-mail is circulating telling us how we can supposedly force the gas stations to lower their prices at the pump. Ridiculous!!! Think about it. why would gas prices be any different than any other commodity? If there is plenty of...milk, and you don't like the price at store A, you drive to store B, check the price and, if it is lower, you buy your milk there. Now, if enough people discover that store B can save them money on milk, store A might possibly be forced to either lower their price on milk to compete, or settle for selling less milk, right? Simple theory. Fundamental example of a free market economy. Now, it is unlikely that one person switching stores would have any impact at all, but this person tells all his or her friends where to buy cheap milk, and together, they all spread the word, so that soon, store B is having trouble keeping up with the demand. To slow the demand, and perhaps to take advantage of the increased flow of customers, store B raises their price on milk. Meanwhile, store A realizes that they have lost business, and to some extent, they lower their milk price. Now both stores are selling some milk, and customers are happy. That is what happens when there is plentiful supply and sufficient demand. But let's look for just a minute at the gas situation. We have, on a global scale, finally crossed the line between a supply driven gas price to a demand driven price structure. Why? That's very simple. We now have more demand than supply. With China soon moving from a few million vehicles to hundreds of millions, that demand is not likely to drop, is it? Here is a whole new demand source for a constantly dwindling supply of fossil fuel, and the supply that remains is increasingly more difficult, and expensive, to get to. So, boycott whatever company you want to for however long you like, the supply won't grow a bit, and the demand will still have grown tremendously. You may SHIFT the demand from one company to another, but you won't shrink that demand. So it is well past time to quit sending this silly e-mail around the world, and focus instead on how to shift a significant part of the demand to some other fuel source, like hydrogen, solar power, etc. We have now produced something over a trillion barrels of oil so far, and some "experts" believe that there is still about 2 trillion more barrels in the earth...somewhere. Much of it might be under very deep water, and we're exploiting that already. Much of it is in oil shale, and technology is making that more practical to get too. But if you believe anything about the oil crisis, believe this. IT WILL NOT BE ENOUGH.

Now, that is just my opinion, based on all that I've read on the subject, and on what I recall of a very well researched lecture I saw on TV several months ago in the wee hours. I'd be happy to hear your opinion, or to try to field your questions. I'm no expert, so your input can only help.

1 comment:

Merv' Russell said...

I've been thinking about this for some time now. The oil prices of today may not be as high as most think they are. When as young man gas prices was between 25 and 30 cents per gal. I've heard many people say that they wish that gas prices were like they were back when. Well, When gas was this cheap, I was only making $1. per hour. OK now this one dollar would buy between 3 or 4 gallons. You could fill the tank for about $6 or $7, now ask yourself, how much are you making? It now takes about $40 to $45. on average to fill your gas tank, (unless you have one of those gas hogs SUVs.).

I'm sure that most people are making $15 to $25 per hour, this amount should be an average. So you only need to work about two to three hours to fill an average gas tank. Just do the math, I know that these oil companies are making a killing on their oil, but hopefully they will put some of this money into research to find some alternative fuel sources. It all boils down to supply and demand and as Jack has said in his blog, the demand is not going to go down, if anything it's going to rise. It's not just our demand for gasoline that's causing the price to go up, oil is used in so many products, just about everything we eat, wear, drink and drive contains petroleum in it. We are victims of our own creed for oil.

We as a nation have wasted more oil than most countries have ever or ever will use. I'm sure that most of the folks that will read this will be a baby boomer. You know what I've said here is factual, if not, it's darn close. Happy driving while you can. Gas is going to get much higher and the demand is going to go through the roof if not the sky. My kind regards,
Mervyn Russell