Um, ... I hate to point this out, but, there IS a shortage.  When demand outpaces supply, causing the price of a good to go up -- that is the DEFINITION of a SHORTAGE.  

There are two ways that price can come back down; (a) lowering demand -- shifting the demand curve Left; OR, increasing supply --shifting the supply curve to the Right.

The high prices themselves cause some leftward shift in the demand curve as people cut back on driving; but without a replacement good, there is no other way to reduce demand.

The supply of oil cannot be shifted right, because Congress (at the behest of their environut masters) will not allow drilling.  Furthermore, the supply curve can currently only be shifted right by importing GASOLINE; that is, buying the already refined product.   This is because we do not have the refining capacity to increase gasoline supply even if we had the oil.  


Speculation is the biggest determinant of short-term fluctuations of price at the pump.  Speculation (so-called) is based on the FUTURES market.  That is, the buying and selling of oil futures at different prices.  Why are they called oil "futures"?  Because the futures market is based on the buying and selling of commodities at FUTURE prices.

Basically, speculators are betting on the FUTURE cost of oil.  If they think that oil will be more expensive in the future, they BUY oil futures; this drives the price UP.  If they think that oil will be cheaper in the future, they SELL oil futures; this drives the price DOWN.  

So, why are speculators betting that oil will be more expensive in the future?  Because no one is increasing SUPPLY -- i.e., no one is drilling for more oil.

What would happen if we started drilling (even if the oil is not actually produced until some FUTURE date)?  Speculators would bet that the price of oil IN THE FUTURE will be lower than it is now.  The would start selling oil futures TOMORROW.  This would drive the price down IMMEDIATELY.

mtb63 wrote: Well, smart -and sarcastic, guy, explain why there is no gas shortage and yet, lo and behold, gas prices are $4.00 plus a gallon. Yeah demand is up, but for the most part OPEC has said they can keep up with anticipated demand indefinately. No, I'm no ecconomist but I can tell a bad deal when I see one. We're getting hosed by someone if there is plenty of gas to go around. If we start looking now for a better way to power our vehicles it, reduces our dependence on oil (foriegn or domestic), reduces the cost of fuel, and puts less pollution into the air - a triple win for our country.  

mtb63 wrote:
Supply isn't the problem people. There is plenty of crude oil being pumped out of the ground right now. There is plenty of gasoline to fill all the gas stations. Do you see any gas stations that have "Out of Gas" signs? No. The reason is because there is plenty of gas. Drilling for more will just put that oil into the same supply system that is broken. Just like mortgage speculators that milk every last dollar out of figurative wealth, oil speculators drive up the price and reap wealth at our expense. Oil companys say drill for more oil and the price will go down. The price will not go down because of that. Speculators will just suck more money out of oil that may - or may not - even come out of the ground. By the time we are done going down this path of unresticted oil drilling we will have turned our America the beautifiul into America the oil-derrickful.

We're too late to start drilling now. Our children might see some reduction in oil prices by the time that oil reaches the market - not us. I agree with the thought of a "ManhattanProject, or Apollo Project" call to arms. I'll tell you what, John McCain won't be the one delivering it. It might not even be Obama. Fact is the way our media is controlled - it most likely won't happen at all. We are stuck with petrolium for a while and that's a fact. We should be looking at finding alternatives though. Money spent to drill oil in some of the most remote wilderness on the planet could be better spent on inventing a new type of carborator that makes gasoline powered vehicles get 100 miles per gallon. That, by itself, woould solve the problem; and in less time.

Sorry, everything that you have said and suggested is not only wrong; it is the opposite of right.  You've got everything backwards.

I'm not sure where you've gotten the beliefs you have about this issue; but an Inroduction to Microeconomics 101 course would probably clear up a lot of your confusion.

Eyas wrote:Um, ... I hate to point this out, but, there IS a shortage.  When demand outpaces supply, causing the price of a good to go up -- that is the DEFINITION of a SHORTAGE.  

Demand?  
Has demand really and significantly increased or are the markets anticipating an increased demand and expressing this expectation via the futures market?  Ironically, the expectation that demand may increase seems to have a greater influence on prices than the actual demand.  See the link I posted earlier.  

Supply?
World-wide production of oil is stagnant.  The world produced 83 million barrels per day in 2004 and it produced 86 million barrels per day in April 2008.  Oil companies could probably produce 5 to 15% more than they do today without extra investments.  They might not be able to maintain that rate of production for long though without additional expenditures as more capital would wear out pumping oil at a faster rate.  

Shortage?  
In one sense we don't have a shortage.  That is, we can buy all the gas we want at $4 per gallon.  In the 70s there was a lack of gasoline at any price.  That was a "shortage."  

Do we have a shortage (a lack of product) or the anticipation of a shortage in the near future which causes the price to go up?  In the end, it seems to affect prices whether the "shortage" is real or anticipated.

paleocon wrote:

Eyas wrote:Um, ... I hate to point this out, but, there IS a shortage.  When demand outpaces supply, causing the price of a good to go up -- that is the DEFINITION of a SHORTAGE.  

Demand?  
Has demand really and significantly increased or are the markets anticipating an increased demand and expressing this expectation via the futures market?  Ironically, the expectation that demand may increase seems to have a greater influence on prices than the actual demand.  See the link I posted earlier.  

Supply?
World-wide production of oil is stagnant.  The world produced 83 million barrels per day in 2004 and it produced 86 million barrels per day in April 2008.  Oil companies could probably produce 5 to 15% more than they do today without extra investments.  They might not be able to maintain that rate of production for long though without additional expenditures as more capital would wear out pumping oil at a faster rate.  

Shortage?  
In one sense we don't have a shortage.  That is, we can buy all the gas we want at $4 per gallon.  In the 70s there was a lack of gasoline at any price.  That was a "shortage."  

Do we have a shortage (a lack of product) or the anticipation of a shortage in the near future which causes the price to go up?  In the end, it seems to affect prices whether the "shortage" is real or anticipated.

I was speaking of shortage defined as any time demand exceeds supply, as opposed to surplus where supply exceeds demand; both working to determine the equilibrium.  Increases in price, of any good, is caused by what is called "shortage" in economics; but, no, it's not a Shortage in the sense of requiring rationing, or of literally not having any oil.  

Either way, shortage is a relative term.  

I think what you're getting at is the amount that speculators are affecting oil price today.  I'm not sure what the typical amount of price is due to speculation, but I think it's somewhere in the 5% to 10% range.  I heard on the radio the other day that, currently, speculation is accounting for as much as 20% of the price.

It's a vicious cycle, a sort of self-fulfilling prophecy; prices look like they're going up because of lack of supply or anything else, then, speculators bet on the prices continuing to go up.  This drives prices up.  Then, as prices have gone up (partly due to speculation) speculators bet on prices continuing to go up.  The increase in price caused by speculation feeds further speculation.  And so it grows.

This is what causes a "bubble".  But, news of massive new drilling in the U.S. can burst this bubble.  As speculators realize that prices aren't going to go up indefinitely, they'll reassess their bets and realize that maybe they've gotten ahead of themselves.  Then, at least, the percentage of price attributable to speculation should go down.

I'm pretty certain that the days of $1.30 per gallon of gas will never come again; but I think current prices are over-inflated and could be brought back to something reasonable simply by NEWS of new drilling.

Of course, the fact that the U.S. dollar has been devalued by the Fed also shares blame in this problem.  Unfortunately, I don't know of any solution that would smack some sense into Bernanke and Bush.
(Uh oh, the economy's in trouble..... Hey, I've got an idea. Let's make the Dollar worthless.  That oughta fix everything.)

Also, remember: demand has increased dramatically over recent years.  Why? Because our population has experienced dramatic growth -- IMMIGRATION.  ILLEGAL Immigration.

Sure, they conserve by fitting 13 men in the front seat of a pickup truck; but, still, the illegals use gas too.

Your attitude implies we should do nothing to change our lifestyle. Just drill for more oil, problem solved. Let's make this whole argument go away by simply using less fuel. I'm not saying don't drill for oil. I say drill all you want but let's not turn our beautiful country into a place that has oil wells as far as the eye can see?

http://www.solarnavigator.net/images/te ... _wells.jpg

mtb63 wrote:Your attitude implies we should do nothing to change our lifestyle.

That's exactly right.

mtb63 wrote:Just drill for more oil, problem solved.

Mostly right.  

mtb63 wrote:Let's make this whole argument go away by simply using less fuel.

You first.

mtb63 wrote:I'm not saying don't drill for oil.

Isn't that exactly what you're saying?

mtb63 wrote: I say drill all you want but let's not turn our beautiful country into a place that has oil wells as far as the eye can see?

That's a sound argument.  Not at all hyperbole.  

Not to mention self-contradictory.

mtb63 wrote:Your attitude implies we should do nothing to change our lifestyle. Just drill for more oil, problem solved. Let's make this whole argument go away by simply using less fuel. I'm not saying don't drill for oil. I say drill all you want but let's not turn our beautiful country into a place that has oil wells as far as the eye can see?

http://www.solarnavigator.net/images/te ... _wells.jpg

You are presenting what is at best a "straw man" argument and what is at worst a ridiculous lie.  There is no possible extent to drilling that would "turn our beautiful country into a place that has oil wells as far as the eye can see."  

If we don't drill we will turn our beautiful and unique nation into a third world nation with endemic poverty, disease, ignorance and lose all our basic freedoms.  

Conserve all you want.  I am.  I am choosing to use less gas as I don’t want to spend $400 a month to fuel my two cars.  But, some people rely on their cars and our government has now put those less fortunate people, whom they claim to want to protect, in a very difficult economic position because of the idiotic energy policies they have implemented.  

Our government has essentially stopped the development of new power and energy in this country for 30 years by refusing to open electric plants, nuclear plants and exploit known oil and gas reserves.  Our government is intentionally pursuing policies that will bankrupt the nation and destroy the economy and hurt less fortunate and middle class Americans.  

I am all for “alternate sources of power.”  The problem is our government is subsidizing dead-end options (like corn-based ethanol) and driving up the price of food (hurting those less fortunate people again!) and therefore directing resources away from other “alternate sources” that might actually work long term.  

Government does nothing well.  In fact, government does almost everything poorly and often programs do more harm than good.  The least government is the best.  The constitution was designed with that in mind.  You would have thought the last 80 years of government action would have proven that to everyone in the country.

If you're so intent on chopping up my remarks - I never said "Stop drilling for oil." We drill for it now. Fine, all I'm saying is let's not do it so that it becomes a free for all. It's a distinct possibility that the "oil rigs as far as the eye can see" will happen if we let big oil do it. You really think big oil will tastefully place oil drilling platforms off the coast of Florida - or anywhere else for that matter? The government is the only way this will be regulated. If allowed to "govern" themselves it will be a free for all.

I notice you didn't chop out my comment on nuclear power.

[quote="mtb63"]Your attitude implies we should do nothing to change our lifestyle. Just drill for more oil, problem solved. Let's make this whole argument go away by simply using less fuel. I'm not saying don't drill for oil. I say drill all you want but let's not turn our beautiful country into a place that has oil wells as far as the eye can see?

[url]http://www.solarnavigator.net/images/texaco_oil_field_donkey_wells.jpg[/quote[/url]]


This country is massive and people need to be able to get around.  There is nothing wrong with people trying to conserve energy; however, never was the horse and buggy outlawed because automobiles were coming sometime in the future.

The entire argument of no drilling is just plain wrong.  We need to drill our own oil to get off being dependent to our enemies but we also need to have alternative fuels, distribution systems, and automobiles that would accept new fuels.  We should be working towards that goal, but not cutting off our nose to spite our face.  There is plenty of development going on; however, we should not deny US oil harvesting and new refineries while we rush into using products that are either not available or have unintended consequences .

For instance:

1.  Ethanol.  Burning up our corn to fill our gas tanks is just plain stupid and will cause global famine.  Just look at what the floods in Iowa are going to do to the world's food supply.  There is already rioting around the globe.  We are the world's food basket and corn is a major product in the world's food supply.  Ethanol production should be suspended right now.

2.  Banning the incandescent lightbulb in favor of the compact florescents is going to poison our water supplies with mercury.  Right now there is no system to discard them and there aren't any plans to create one but you need a hazmat team to come clean one up if one breaks in your home.  

Unintended consequences.

Let's not turn our beautiful country into an oil pump?  Please.  Anwr is a tundra.  Go thru Pennsylvania sometime.  There are oil rigs all over the place..ever heard of PENN OIL?  They are not detrimental to the view.  They are just there.  

I see Congress' socializing the oil industry as a permanent way they will the end  any new drilling or new refineries.  The socialists and marxists are destroying our economy and when it's totally in the dumper, they'll all  come in and say we'll save you all.  Welcome to the United Socialist States of America.