What is it that makes me laugh? It’s every time I enter a political discussion about why Obama over McCain, those advocating the Republican Party bring up drilling. Drilling is the attempt of the Republican Party to command a wedge issue with the Democrats, those who opposed ANWAR. Drilling is the reason the GOP puts Sarah Palin up on stage, and justifies her being on the ticket. This last Saturday, at my running club, a guy with whom I am a friend mentioned, “if they would have done what Gingrich proposed back in ____, we wouldn’t be in this mess.”
Let’s back up for a minute and discuss simple economics. There are two things that affect price, supply and demand. In this case, Supply is the argument for more drilling. The theory being that if there was more oil in the market, it would be worth less per barrel. Okay, in a vacuum, that would be true – ceteris paribus. Of course, what we aren’t in is a vacuum.
What every advocate for drilling fails to mention, when they speak to greater expansion of drilling, is that there has never been such a strong demand for petroleum. China and India, these two little countries in Asia, with a good 35-40% of the Earth’s population, now have middle classes. These two countries’ middle classes now are purchasing cars and driving them. Of course, with their currencies on the incline, and their “demand” for petroleum increased, that throws the market into flux.
As it stands, we have limited petroleum in the United States. Even with further drilling, off shore, right off the beach in California and Florida, or up in ANWAR, our addition to the World Crude Supply would be nominal; therefore, it would do very little to drop the price in petroleum.
Let’s take it from the “Liberal” side of the fence, and talk about conservation of the resource. What if we all used less gas, well, that would help our pocket books, but it would do little to change the price of gas:
“Oil consumption, for example, has been falling in rich countries for over two years. Goldman Sachs expects them to use 500,000 fewer barrels a day (b/d) this year than last. But it reckons that decline will be more than offset by an increase of 1.3m b/d in emerging markets. It predicts China’s demand for oil will grow by 5%.” (Endurance test, Economist, August 21st, 2008)
Folks, no matter how much we drill in addition to that which we do not already drill—in the areas oil companies already can drill, we are not going to cut the price of oil for you and me at the pump. Gas is going to stay expensive, and the Republicans are going to continue to talk about more drilling. Of course, stock holders of Exxon Mobile, et al, gain more value, as do the executives’ salaries increase, when we increase drilling, it has little effect on our price at the pump, while reducing our environmental safety – to drilling I say, “Supply and Demand – it is demand affecting price, not a lack of supply.”
3 comments:
Ergo, all of these DARN SUVs gurgling up the gas! ....and yes, I'm a culprit! ;-)
I agree that more supply small from ANWR) does not matter. What matters is what people will pay.
I once heard a girl who wanted to sell some jewlery. She would not sell it because it was worth $3k and she was bid $2k. I said then it is worth $2k.
It is worth what someone will pay.
Same with cigarettes. (Why I have held MO for 10 years). They can make the price of cigarettes whatever they want and very few will quit.
If tomorrow a.m. gas was $4.2/ga or $5/ga do we really think soccer mom in Lake Forest or the famrer in Missouri will drive less?
Sure a few people in Berkley will ride their bike to work/school. I suspect these people already ride thier bike to work.
Thus the price of oil is not affected by more/less supply...but by the world's addiciton to it.
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