Comments (21)

The demand for oil is increasing daily while at the same time, the supply of oil is constant (in the short term), hence the price rises. The major demand increases for oil come from China and other Asian countries. Any reduction in demand for oil in the USA will not offset the demand increases in Asia, hence high prices are here to stay. We can only offset these high prices with alternatives to oil and gasoline. Think green: wind, solar, battery powered cars.

The folks who focus a solution for the energy crisis on less driving and reducing speed limits are missing the even larger point. Oil is used in manufacturing and agriculture to a much larger extent, and have an impact more critical to our economy and life style than buying a Prius. Granted, driving less is certainly helpful, but with the world shortage of food looming large on our horizon, the cost of fertilizer and diesel will be more impactful and dangerous than $6.00 gas ever will be.

The manufacturing and agricultural issues are approaching like a stealth bomber, but the gas companies want to keep us distracted so their tax incentives and breaks at the pump will protect their wholesale costs and profit. Oil companies own or control every aspect of oil from drilling, transport, refining, transport again, distribution, and then to your corner station. Their profits are systematically extracted long before you stick the nozzel in your pickup. They then can go before Congress and whine about pump prices only reflecting costs.

Why is no one asking about the additional support of oil in the farm bill? I venture that farmers won't be spending subsidy money on vacations. Another boondoggle for the oil companies.

Someone not able to drive will certainly find it inconvenient, but being hungry will truly focus their mind on a solution.

The reason for the high oil prices is INSTABILITY snd WARS in the middle east. The "free american media" is not informing americans.
All for the sake of the only APARTHEID DEMOCRACY IN THE WORLD. Amazing how neocon zionists control all aspects in the US.

Great posts! Enjoyed reading them, and my two cents would be as follows:

The market will handle the short term. Short of the Iraq war ending, there is no quick fix.

The cafe standards need to be accelerated; no other legislation seems to have more impact.

The general population needs to be taught to think like the group of you above, so we won't have any more "corny" solutions.

Thanks. Anybody remember back in '73, I think, when the Saudis told us we needed to increase our gas taxes, or they would raise the price of oil? And they did. Yes, it happened.

When oil prices were down to $8 per barrel in 1998, were commodity traders to blame for that? Were they "out of control?" People only blame commodity speculators when the price of oil goes up. When oil prices hit the skids, everybody rhapsodizes about the wonders of the free market.

It is not so much that the price of oil has increased in dollars as it is that the value of the dollar has plummeted. Now whose fault is that? I would lay the blame squarely at the feet of the Federal Reserve. There is also a high risk premium built into the price of crude. That is because the Bush administration has consistently pursued its insane policy of destabilizing the Middle East, the home to the largest proved crude oil reserves in the world.

Iraq is in a shambles, with oil production there not even sustainable at levels that Saddam was able to maintain. Now the administration is threatening almost daily to go to war with Iran, home of the third largest reserves of crude in the world as well as the second largest proved reserves of natural gas in the world.

Now under the above described circumstances, what else could the price of oil do except to go up? It will keep rising until the Federal Reserve comes to its senses and until the Middle East becomes politically stable again.

Here is a counter intuitive solution that is well within the goverments area of expertise, would stablize gas price and help remove the ability of terrorists to deliver high gas profit to terrorist supporting countries:

Change the existing gas tax so it follows a variable schedule where gas tax rate goes DOWN when gas prices go DOWN and gas tax rate goes UP when gas prices go UP (yes, increase tax rate when price of gas is high).

Keep in mind that gas tax does not change the store price of gas (the store price of gas is set by supply and demand).

The effect of a variable gas tax rate is to protect the marginal producers (like deep water and oil sands) that keep getting put out of business each time the price of oil decreases.

Or address the problem of price fixing at OPEC by bringing them to WTO.

End the Iraq war, continue spending the same amount of money, only this time on a "to the moon srategy" to get out of the oil stranglehold.

So, end the game. From science class, we know that water, H20, boils at 212F(correct for altitude, your boiling temperatures may vary). We also know that 'fire' can 'boil' water. When water boils, vapor is produced that wants to be Someplace Not Near The Hot Thing. Put an impeller in the way of the escaping vapor, hook up a mechanical drive or electric drive unit, such as a generator or alternator to this impeller, and congratulations, you done got yourself one them there steam engine-things.
Many things can be burned, to heat the water. Coal, oil, wood, mortgage-backed securities, pretty much any kind of combustible garbage you might have laying around there, takes a little scientific application and some work, but petroleum independence really isn't that far away, not nearly as far away as some people might have you believe, at any rate, and pursuit of such avenues of energy production are certainly far, far preferable to one more tired story about OPEC, and the middle east, and the continuing saga of Forever War. Sciencer. It helps you solve problemser.

Worrying about short term fluctuations in oil prices is like fussing over an ingrown toenail while you're having a heart attack. The BIG problem is that supplies will not be able to meet rapidly increasing demand, and most of us are in denial, not looking for the BIG solution.

Those scenarios rely on simple micro-economic theory of supply and demand for solutions. The truth is much more complicated as we have all discovered. Oil pricing is composed of many different influences including anticipated demand, inflation expectations, monetary hedging, bartering and other swaps. Price movements that occur as a result of isolated incidents are quickly loosing relevance in todays complex environment. Bomb attack on a pipe line - what else is new? The only legitimate "shock" now is revelation of genuine (long term or permanent) supply limits or proof of alternatives to oil as the primary energy driver. What I would like to see discussed is the apparent trend of using oil as a currency substitue. When you begin to examine oil in this capacity the analysis becomes much more interesting.

In Reply to ken:

The article you quote about Canadian Oil shales requiring a Gas Price of 2.50 was written some 4 or 5 years back.

In the mean time the US dollar has more than halved in value. So at the current value of the US dollar the cost gas has to be is 5.00 US dollars

Sorry to burst your bubble.

Also the price factor is not so much the price of gas but the price of oil per barrel. As we all know Oil per barrel is now 115 US Dollars and rising but in all that time the value of the US dollar is dropping as it is continuing to do. So the net effect is zero.

It is the differentiation between the net cost of producing oil from conventional wells versus the cost extracting oil from shales or sands.

The major problem is the water cost. How are you going to get enough water to Canada to extract the oil without turning the breadbasket of the USA and Canada into a Dust Bowl?

It is simple supply and demand. As you use more water to extract the Oil from Oil shales and sands the price of water rises. People need water to drink, water to farm, water for other industries, water to stop and prevent forest fires. You also have the massive question of where you are going to put all the polluted water?

While the cost of water now, means oil per barrel prices of 150 US dollars (assuming the US dollar does not continue to depreciate) make Oil shales a viable option the minute you start using such vast amounts of water, the cost of water goes up thus making it not 150 US dollars for break even but 170 US dollars for break even and as you raise production the price of water which is a finite resource already at maximum use rises exponetialy.

It has been noted by many Oil producers that the total energy cost of extracting Oil from Oil shales and Sands using current technology is so close to the total energy value of the oil extracted that there logical reason to do it.

Some people have noted that several people closely connected to the current White House administration have billions of dollars stuck in Canadian oil shales from the last great oil crisis in the 1970s. It is why nobody with an ounce of sense is investing in Oil Shales or Sands.

While we appear to have reached peak oil in Saudi Arabia, this is not the case in Russia, Iran or Venezuela and there are sill vast reserves in the Caspian sea. The only problem is the current White House administration has pi**ed off most of those suppliers. China and japan have just discovered gigantic field between them but I am guessing they will keep that to themselves.

Those are are all supply problems

The Europeans realised decades ago that the solution was demand side and started high taxes on gas and inefficient engines to change their economies. With the average European vehicle using a third of what the average US driver does and better their public transport infrastructure, they just are not feeling the pinch as hard as the USA.

The solutions are demand side not supply side.

The USA is still stuck in the Cheap Oil Trap. Just like Br'er Rabbit stuck to the Tar baby.

A more interesting game would be:

A former Halliburton chief -let's call him DC- manages to get elected Vice-President of the United States. He is in charge of the nation's energy policy, so he convenes a series of secret meetings with his buddies -the bosses of energy corporations- with one clear goal: make as much money as they can.

DC has the advantage that the President of the United States is a brainless moron, obsessed with surpassing his dad -another former POTUS-. So, they decide to invade some oil-rich country, one that few people in the world would care about: Iraq.

In the course of five years, the war causes great instability in the Middle-East, which pushes the price of oil from 30 to 120 dollars per barrel.

Now.... what was the question?

As gas and oil are natural resources, their supply is finite. In the end, the CEOs of Oil Companies will be panhandling for their meals! Buy gasoline, use gasoline (frivolously, if you can afford it) and let the wells run dry. There will be one less reason to go to war.

I like high gas prices for three reasons:

1st. I bicycle or ride the bus just about everywhere I go so spend very little on gasoline.

2nd. I own stock in Exxon...

3rd. High prices energy prices are the only way people will improve the efficiency of the cars and homes. All true environmentalists should be hoping for $6 a gallon gasoline.

The Issue here is Bush and Chenney, when Bush come to power he set the target for the SPR(national reserve) to 700 million barrell, that by itself drove the price up, and then add to that the speculators who are getting the signals from the weekly energy report(again Bush Administration official who was working for energy companies for 30 years before) to drive the price up. that is plain manipulation.

There seem to be two inter-related problems in need of some "free trade" oversight and analysis:

1. Commodies trading and traders are out-of-control. Price manipulation based on voodo-speculation and Chicken-Little fearmongering has run amock. Don't forget the energy traders who joked about ripping-off grandma when they drove up California energy prices six years ago.

2. Seven long years of Bushdoo Economics have transformed a strong dollar into play-money. The Bush supply-sided Energy Policy that fostered Oil Company profiteering has been disasterous. Seven long years have been wasted feeding an addiction. Even today, the rhetoric is all about reducing our dependence on only FOREIGN OIL. When addicted, one must eliminate the dependency on poisons from ALL sources--foreign and domestic!

1. We could go (back) to 55 mph speed limit
(60 on most intersates). It would be - and
would be seen to be- democratic and to
be quickly effective.
2. We could initiate a public discussion of
gas rationing. There's not enough
institutional memory left from WW2 to
guide us, but many of the same policy
considerations would apply.
3. Long-term measures are more varied, but
one that should discussed as soon as
possible is restoring railroad service,
passenger and freight, with particular
attention to roadbed restoration in the
Atlantic corridor.
Tom Parker

When will this country wake up ? The answer to high oil prices is very simple. Hitler ran an army on gas made from coal. Who was he aided by ? A United States Company called Standard Oil. The U.S. and Canada have the largest Coal deposits in the world and according to an article that ran in a promenent magazine the breaking point to make it profitable was when gas from oil reached $ 2.50....We have surpassed that. Why are we not building refineries to do so ? Greed by the oil companies. Scrubbers have been developed to harness coal refining without damage to the universe have been developed. Our government should demand that refineries be built. Of course our oil loving president and his congressional oil buddy cronies don't want that to happen.

One more thing:

In an environment of inelastic supply and inelastic demand, the prices will often respond to peripheral events, which seems completely normal.

With no real alternatives to carbon fuel and with limited supply, the price will keep going up to a point near economic collapse, which is a much higher price than it is today. Even as the economy tanks, the realization of the real problem with oil supplies will keep the prices extremely high due to hording and profiteering. Finally, military moves by the great powers to "secure" the oil for themselves, coupled with world-wide social unrest will really add "oil" to the fire.

At that time, our navel gazing about "reasons" for high prices will seem pretty stupid.

This column bring a different lesson and a different question to my mind.

The lesson: The mucky-mucks are often wrong and have near zero expertise on many, many issues. Quoting them as some "authority" is often a mistake.

The question: When will the people who are actually paid to think of energy strategy will actually do their job? Or, conversely, do we even have such people, or is everyone mostly engaged in trying to suck out the last billion of profit for themselves before the well runs dry?

People will pay higher prices for fuel. Most have no choice. To be sure, many will adjust. They'll limit unnecessary driving, they'll combine trips, they'll use public transportation. That's all well and good. But there is a limit to people's ability to "adjust." Many of the same people who today are barely able to pay their bills will be unable to do so when the price of gas hits $7. And it will, given the rate at which the fed is debasing the currency. People shouldn't underestimate the extent to which we're headed for big problems in this country. They need a wake-up call.

I'm fortunate. I can get by on $30 worth of gas a month. Or, if I chose, I don't have to drive at all. Not everyone is so lucky.