The Real Reason For High Gas Prices

[evil-roda]

My fellow Newgrounders, I am surprised that I did not realize this earlier! The whole reason prices have been going through the elastic coating of the universe is because as demand goes down, production is cut, and the whole reason for doing this is so that supply is below demand! This way, they hope to charge as much as possible. Hopefully, their workers won't be able to afford to go to work, like the rest of us. Yeah, that's right, Exxon, what happens when everybody is fired because they can't go to work? What happens when nobody can afford anything anymore?! Idiots. Your thoughts, everybody?

[Prinzy2]

Can you explain why food prices are going up? Because people are eating less obviously.

Stupidity.

[Der-Lowe]

You need a crash course on microeconomics. Normally, I'd give it, but it's midnight. I'll check tomorrow, and if nobody has answered, I'll be back and with GRAPHS :D

Anyway, you are fundamentally wrong.

[Al6200]

In a monopoly, that would be true. The oil developers could intentionally reduce oil supplies in order to raise prices.

But in the real world, that's limited by competition. Oil producers can't just send prices through the roof because it would cause more people to buy hybrids and move to electric cars.

[evil-roda]

Wow, can't believe people replied so quickly. I know it's a large forum, but considering the time frame... Anyways, the reason food costs are going up is most likely so that those companies can maintain their profits. That, or they just saw that it worked for the oil companies, and they followed suit. Also, I'd like to say that what I said earlier about nobody being able to afford anything is not the only possible outccome, just worst case scenario. More than likely, the oil companies will keep us in their little trap so that we are paying just as much as we can afford.

[evil-roda]

Crap, AI6200! I can't find an edit button! Anyways, it is a monopoly, sort of. The large oil companies have probably made some sort of agreement, because recently, the gas prices all over a single area are usually the same, except when they change prices, because some stations change faster than others.

[CIX]

Every business tries to get the consumer to pay as 'much as they can afford.' There is no oil monopoly and even if there was it wouldn't last. Consumers would choose an alternative form of energy.

[MultiCanimefan]

Not many people realize that when the price of oil increases, the prices of all other items increase as well. Everything traces it's origins to gasoline, for without gas, how would food get delivered to stores? Bam, food prices go up as less and less food becomes available, thus leading to people growing their own food. Machinery that produce all of our products depend on either oil, electricity, or both. With the price of oil skyrocketing, machines are used less and more sparingly. Guess what happens then? Economic standstill. Enjoy the riots.

[homor]

gas prices are going up becuase the oil companys are driving them as a way of gambaling.

[evil-roda]

CIX, it's not a monopoly in the traditional sense of the word, but a sort of 'corporate alliance', if you will. It's almost like NATO, where all member states retain their soveirgn status, and also help each other out. Except, you know, it's not an international military alliance, and it's not really official, or it's under wraps.

[Elfer]

At 7/10/08 11:08 PM, Al6200 wrote: In a monopoly, that would be true. The oil developers could intentionally reduce oil supplies in order to raise prices.

A monopoly, or a strong cartel.

Can anybody here possibly think of some cartel-like organisation of oil-producing countries?

[Gunter45]

It's actually been estimated that, without the rampant speculation in oil, gas prices would only be $2 a gallon here in the US. It's artificially being driven up by people who want to make a quick buck.

[slowerthenb4]

OPEC are a bunch greedy manipulative bastards hell bent on keeping us over a(their) barrel.

[aninjaman]

At 7/11/08 11:50 AM, Gunter45 wrote: It's actually been estimated that, without the rampant speculation in oil, gas prices would only be $2 a gallon here in the US. It's artificially being driven up by people who want to make a quick buck.

The oil speculators basically have a monoply and speculation could easily be stopped by congress if they passed the law and enforced the Sherman antitrust act but instead oil has invested its money in congress and even in both presidential candidates so congress wont stop speculation but instead congress harps the idea that offshore drilling and drilling in Alaska would do anything but have prices gown down 5 cents years from now and by the time offshore drilling kicks in oil prices would have rose so much more by then that those 5 cents would not have made a difference.

[evil-roda]

Very true, man. US government has been bought and paid for by companies like Exxon, BP, General Electric, and so on. But that means we can declare them illegal, shoot them, and take office ourselves. Just joking. But we really need to do something about it. Therefore, if there's somebody on the ballot you've never heard of, vote for them.

[CIX]

At 7/11/08 11:50 AM, Gunter45 wrote: It's actually been estimated that, without the rampant speculation in oil, gas prices would only be $2 a gallon here in the US. It's artificially being driven up by people who want to make a quick buck.

Speculators are not the problem. You cannot outlaw speculating. tell a farmer that he can't be sure what his next crops are going to bring him at the market next season and see how well that goes. Oil companies are extracting petroleum from dangerous and unstable regions and there are news reports of pipelines trying to be blown up. The days of black gold are over, refining reaching petroleum is increasingly expensive.

OPEC is a cartel of nations that control how much is leaving the country. Businesses would not engage in a cartel because it protects the weakest competitor and they have to sell at their prices.

[Der-Lowe]

At 7/11/08 11:50 AM, Gunter45 wrote: It's actually been estimated that, without the rampant speculation in oil, gas prices would only be $2 a gallon here in the US. It's artificially being driven up by people who want to make a quick buck.

Meh, bubbles burst.

At 7/11/08 02:18 PM, slowerthenb4 wrote: OPEC are a bunch greedy manipulative bastards hell bent on keeping us over a(their) barrel.

Nuke them. Seriously, you attack countries randomly, why not invade countries having a reason now?

At 7/11/08 11:13 AM, evil-roda wrote: CIX, it's not a monopoly in the traditional sense of the word, but a sort of 'corporate alliance',

Collusive oligopoly is the correct term.

At 7/11/08 11:46 AM, Elfer wrote:

At 7/10/08 11:08 PM, Al6200 wrote:

Can anybody here possibly think of some cartel-like organisation of oil-producing countries?

um..... PETA? :D

Anyway, the microeconomics thingy was that oil supply and demand are price-inelastic in the short run. What does that mean? Well, that Quantity responds little with variations in price, or,what's the same, that price responds greatly to small variations in quantity. So, when there's a little supply problem, the price goes up greatly. Price- Elasticity of oil demand is calculated to be 0.05, that means that, if there's a 5% decline in oil production, the price of oil doubles.
I don't have data for the supply of oil, but expect it to be around those figures.

You guys went on the monopoly rant and didn't talk about elasticity, shame on you >:(

[evil-roda]

At 7/11/08 04:19 PM, RadioactiveRabbit wrote: Or maybe it's because we have a insane environmental congress which puts a shitload of red tape on oil refineries and offshore drilling, which causes us to rely om foreign oil and bottlenecks our own production in refineries.

You realize that's another reason why they're doing this, right? They want the general public to support that, and then they have unlimited power. What they do is get what they want, lower prices a bit for a little while, then raise them to get something else.

[CIX]

At 7/11/08 06:31 PM, evil-roda wrote: You realize that's another reason why they're doing this, right? They want the general public to support that, and then they have unlimited power. What they do is get what they want, lower prices a bit for a little while, then raise them to get something else.

Life isn't a conspiracy theory.

[robattle]

Those oil people don't have limitless amounts of oil in the ground. If they were wise they would save up for investing in another resouce (replacement for oil), that way they can stay in bussiness but selling something different. They know they can't stay in the oil bussiness forever they have to change over in time.

[evil-roda]

CIX: True, true. But then again, the Alaskan Pipeline is underused, and oil companies have plenty of land to drill on. On C-SPAN, just a month or two ago, they said Exxon had a huge amount of land that they spent loads of money on. And some people said that a lot of that land might not have oil. Others said that Exxon wouldn't have bought the land for so much money if they weren't sure it had oil. Unless, of course, they were building offices, highly unlikely, considering cost and size of land. I'm ashamed to say I don't have the specifics, but it's true.

[TheMason]

At 7/10/08 10:53 PM, evil-roda wrote: ... The whole reason prices have been going through the elastic coating of the universe is because as demand goes down, production is cut, and the whole reason for doing this is so that supply is below demand! This way, they hope to charge as much as possible. ...

Your underlying assumption is actually wrong. The reality is that world demand is increasing at a pace that supply is unable to keep up with. See while US demand may be going down China and India's demand is going up. These countries (each with potential drivers numbering in the hundreds of MILLIONS) are developing cheap cars that a good many of their peasants will be able to own them.

Therefore the US could totally transition to cars that run on pixie dust...and (in about 5-15 years) it won't make a noticable dent in demand for oil.

Furthermore, between 2012-2020 we are going to hit something called Peak Oil. Basically, the amount of oil we will be able to pull out of the Earth will start to decline. The major problem with this is that demand is projected to increase.

What this all comes down to is that your assumption that demand is going down...when in reality it is going up. Meanwhile our ability to create a supply for this demand is slowing to a trickle.

[evil-roda]

At 7/11/08 09:09 PM, TheMason wrote:

At 7/10/08 10:53 PM, evil-roda wrote: ... The whole reason prices have been going through the elastic coating of the universe is because as demand goes down, production is cut, and the whole reason for doing this is so that supply is below demand! This way, they hope to charge as much as possible. ...

Your underlying assumption is actually wrong. The reality is that world demand is increasing at a pace that supply is unable to keep up with. See while US demand may be going down China and India's demand is going up. These countries (each with potential drivers numbering in the hundreds of MILLIONS) are developing cheap cars that a good many of their peasants will be able to own them.

Therefore the US could totally transition to cars that run on pixie dust...and (in about 5-15 years) it won't make a noticable dent in demand for oil.

Furthermore, between 2012-2020 we are going to hit something called Peak Oil. Basically, the amount of oil we will be able to pull out of the Earth will start to decline. The major problem with this is that demand is projected to increase.

What this all comes down to is that your assumption that demand is going down...when in reality it is going up. Meanwhile our ability to create a supply for this demand is slowing to a trickle.

Alright, but still, won't China and India get oil from Russia and the Middle East, not to mention China's coal being able to be converted to oil, thus having not as much effect on our economy as you think? We get most of our oil from Canada, and so Middle Eastern oil doesn't really have to be our only source. Also, did I mention the Alaskan Pipeline, and the places that oil companies are allowed to drill, are currently being underused? I think I did. Also, if we did make cars that run off pixie dust, none of this would matter.

[TheMason]

At 7/11/08 09:51 PM, evil-roda wrote:

Alright, but still, won't China and India get oil from Russia and the Middle East, not to mention China's coal being able to be converted to oil, thus having not as much effect on our economy as you think? We get most of our oil from Canada, and so Middle Eastern oil doesn't really have to be our only source. Also, did I mention the Alaskan Pipeline, and the places that oil companies are allowed to drill, are currently being underused? I think I did. Also, if we did make cars that run off pixie dust, none of this would matter.

Nope. World demand is world demand and Peak Oil will be a worldwide phenomenon. In fact it may be smart policy (albeit unintentionally smart policy) to not drill in America's oil reserves because then when peak oil hits we can take care of our own.

But I digress.

Currently China and India get their oil without competing directly with the US. They buy from countries on our "Do Not Trade With..." list such as the Sudan and Iran. However, this trade does two things: 1) undermines our sanctions (but that is a different topic) and 2) increases speculation. See speculators do not care about the politics, nor do they really look at the situation as "hey the two markets are not interacting with one another". Thus they behave as if it is one big market...they look at the sum of supply and sum of demand. Some economists are saying that about 60% of the skyrocketing increase in oil prices is this speculation. Therefore, where China & India get there oil does NOT really effect the price of oil...whereas their demand does.

Besides the speculators have it right. Why sell oil for $55/barrel when you can get $150?

Actually there are very few places where oil companies are allowed to drill domestically. Those places that are drilled are starting to slow in production. So while you mention it, it is another erroneous assumption because the problem is that these oil reserves are underused because oil companies are not allowed to drill there. That is the government's doing...not the oil companies.

As for "pixie dust" it was just an attempt at humor rather than saying "Fuel X". However, if we could run cars on "pixie dust"/"Fuel X"...it would still matter. The reason: plastics and other petroleum based products.

[evil-roda]

Alright, then... I guess I've been mostly defeated... Except... What do we do when we can't make plastic anymore, because there's no more oil? We make synthetics. America could be completely off of the fossil feul addiction, like, right now, but we aren't. You know why? I don't. Also, the GM Metro got 55 MPG, and I know they worked, my mom drove one for five years with no problems, and they took it off the market. Yes, I'm suggesting what you think I'm suggesting.

[ThePretenders]

At 7/11/08 05:49 PM, Der-Lowe wrote: um..... PETA? :D

Anyway, the microeconomics thingy was that oil supply and demand are price-inelastic in the short run. What does that mean? Well, that Quantity responds little with variations in price, or,what's the same, that price responds greatly to small variations in quantity. So, when there's a little supply problem, the price goes up greatly. Price- Elasticity of oil demand is calculated to be 0.05, that means that, if there's a 5% decline in oil production, the price of oil doubles.
I don't have data for the supply of oil, but expect it to be around those figures.

You guys went on the monopoly rant and didn't talk about elasticity, shame on you >:(

I agree with you. Any increase in demand or decrease in supply will trigger a large increase in the price of oil because the supply and demand of oil in the market is very inelastic due to lack of good substitutes and that oil is a necessity. You just can't click your fingers and magically increase oil production because it takes time to develop new technology in which to dig for new oil reserves, so the price of oil is likely to be high for a long time.

However, the difference between now and the 70s is that oil production will peak and decline and like you said the PED for oil is 0.05, and that means that the price of oil will be even higher in 10-20 years (as the diagram clearly shows in the Mason's post). Unless we develop substitutes now and reduce the price elasticity of supply, there will be no end to the prices. I think we should stop opening oil based power stations and begin a process of shutting it down to replace with coal and nuclear power stations. We should phase out the internal combustion engine by transitioning from petrol to hybrid to battery electric.

[ThePretenders]

At 7/12/08 10:45 AM, ThePretenders wrote: Unless we develop substitutes now and reduce the price elasticity of supply, there will be no end to the prices.

Whoops, I meant increase. Silly me.

[Der-Lowe]

At 7/12/08 10:29 AM, evil-roda wrote: Alright, then... I guess I've been mostly defeated...

Nobody wins and loses, on the contrary, if you had an idea which was flawed, you won by incorporating more knowledge.

Except... What do we do when we can't make plastic anymore, because there's no more oil? We make synthetics. America could be completely off of the fossil feul addiction, like, right now, but we aren't. You know why?

Because the opportunity cost of switching to other energy type is larger than the price of the gallon.

I don't. Also, the GM Metro got 55 MPG, and I know they worked, my mom drove one for five years with no problems, and they took it off the market. Yes, I'm suggesting what you think I'm suggesting.

That Americans don't like fuel-efficient cars? Seriously, the rest of the world uses 4 cylinders. They're fun, give them a try. The biggest engine my family has had is a 1.6L one.

[Der-Lowe]

At 7/12/08 10:45 AM, ThePretenders wrote: I agree with you.

yay!

However, the difference between now and the 70s is that oil production will peak and decline and like you said the PED for oil is 0.05, and that means that the price of oil will be even higher in 10-20 years (as the diagram clearly shows in the Mason's post).

Yeah, I should've included that as well. It's that I like Microeconomics so much! :D

we should stop opening oil based power stations and begin a process of shutting it down to replace with coal and nuclear power stations. We should phase out the internal combustion engine by transitioning from petrol to hybrid to battery electric.

I agree with you :)

[The-evil-bucket]

You're so right. It's all a conspierecy by the faceless corporation to make money.