Posted by: endithinks | June 22, 2008

On Oil Prices

The cost of oil and gasoline is skyrocketing and everyone seems to be pointing the finger at whoever happens to stumble across their path as to why the prices keep going up.  I’m here to tell you the reasons for the prices and it is a simple lesson that we all should have learned in tenth grade economics class: the secret is supply and demand.

Supply and demand is the foundational theory of economics both micro and macro.  It is a theory that in a very basic sense says “If a product is in limited supply the prices will increase.  If the product is in amply supple the prices will fall.  If the demand for a product is low then the prices are low.  If the demand for a product is high then the prices are high.”

What we have in oil prices is a limited supply and a very high and ever increasing demand.  Put those things together and you have high prices and record profits for oil companies who are laughing all the way to the bank.

So why is the demand increasing so much over the last 12 years?  I use 12 years because when I was a high school senior the gas was one dollar a gallon and now it is four dollars, a three hundred percent increase.  The reason demand has increased is due to three major factors.  Firstly, the love of Americans to drive no matter the consequences, secondly the love of Americans to drive large fuel inefficient cars (the hummer brand in effect personifies this) and thirdly the rise of other nations that have never had the need for the copious amounts in which they are consuming.

Americans love to drive.  We are the ones who invented the automobile in the first place, or at least built it in a manner in which it was profitable.  We also have a unique situation that our country is so spread out and large.   We have never let the size of the country get in the way of our desires and we continued to drive on Sundays just for fun or take long trips in out automobiles instead of using trains or other more efficient methods although that is changing as people feel the pinch.

The rise of other nations in their demand for oil is also a main and in many ways the main component on the price of oil.  (If you want to know where America gets its oil check here notice how the “foreign oil” comes from our biggest neighbor to the north and third place is Mexico…watch out for supporting terrorists right?  The idiots in the mass media never talk about where we actually get our oil from…) The nations that use the most and purchase the most crude oil are as follows.

Hurray for America number one again!  An of course our president has some great ideas on how to fix this problem.

So what can we do as a people to lower our own consumption of oil and try to change the dynamics of too much demand?  Well there are quite a few things that we can do that will not require us to join a commune.  For some ideas check this out.

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