The Unheralded Return to Lower Gas Prices
Nick Gillespie | January 2, 2007, 9:09am
From the Cincy Enquirer, re: gasoline prices in Ohio and Kentucky (and, by extension, the rest of the country) in 2007:
Matthew Roberts, an agricultural economist with Ohio State University, predicted gasoline prices in January would dip below $2 in Ohio and Kentucky. While prices might sporadically spike for a few days to $2.50, he forecast costs would top out at $2.30 per gallon in 2007.
He said sustained higher prices have spurred overall oil production and exploration as well as conservation. The three factors have stemmed upward pressure on gas prices.
"There's an old economist's saying that the best cure for high prices is high prices," Roberts said. "High prices have caused demand to soften at the same time there's more efficiency and increased production and exploration."
He noted that production cuts by the Organization of the Petroleum Exporting Countries earlier this month signal there's now excess capacity - contrary to the conventional wisdom that worldwide production is maxed out.
More here.
Prediction: If Ohio State loses to Florida in the BCS title game next Monday, we'll see $4 gas prices by January 10. Why? Because it'll be a sign that nothing is right in this crazy world.
Remember the glory days of $3/gallon gas here.
Mike Kozlowski | January 2, 2007, 11:44am | #
Tom-
Read your post carefully and understand fully what you're trying to say. The problem is that right now, adding taxes isn't going to make much difference. Let me try and explain my POV.
1. First, taxes are already a good sized part of the cost of a gallon of gas. In SC right now, I pay between $2.14 and $2.30 a gallon for regular, depending on what part of the state I'm in. Of that, 35.2 cents per gallon is state and Federal taxes. That does not include, by the way, local taxes that many cities and counties level as well. In other states for example, :
New York: 48.7 cents/gallon
California: 50.4 cents/gallon
Hawaii: 53.5 cents/gallon
The short version is that as of now, just about 25% to 30% of what we pay for a gallon of gas is already taxes. Where will we get the money to pay for more? Congress can lay all the taxes they want on the oil companies, but the fact is that for every penny in taxes the oil companies will have to pay, they will raise the price at the pump in order to make up for it. Do you propose that they be forbidden to do so? Congress may try to do so, but I suspect that would not stand up long before the Supreme Court. Any any effort to control prices will have but one effect - immediate and permanent shortages.
2. The oil companies do not set the price - speculators do, just as they do for most of the major commodities we use in every day life (think milk, wheat, etc.). The prices are set by the speculators, not by the oil companies. Yes, they could cut the price per gallon by some distance and still be making a profit (some numbers I've read suggest as much as 50 cents a gallon) - but then the stockholders may have something to say about it. And like every publicly traded company in the nation, the oil companies' stock is mostly owned by average citizens, not rich fatcats.
3. SUVs need to be banned? Fine. How do you intend to make people buy their replacements? It's still a free market; no one HAS to buy anything they don't want to. And in any event, there are some small SUV's out there now that have comparable gas mileage to midsize sedans - are they to be banned as well?
4. 'Drill anywhere and everywhere' - now THAT we agree on. :) There is enough known oil in and offshore of North America to far outstrip the Saudi reserves...and we will let it sit there for fear of offending the green-breasted snail owl, or whatever other reasons a badly out-of-control environmental movement and its political minions come up with.
whit | January 2, 2007, 1:00pm | #
actually, as a futures trader, i want to amend this
"There's an old economist's saying that the best cure for high prices is high prices,"
in regards to COMMODITIES (not stocks. that's a bit of a different story and more complex)...
the best cure for LOW prices is LOW prices
the high prices corrolary does not work. this is why scale traders use a long only strategy when scale trading
commodities have an instrinsic value (obviously), whether it be corn, crude, gold, wheat, beans (BEANS IN THE TEENS!!!), etc.
for example. when a grain gets really cheap (supply exceeds demand) producers react. they begin substituting the now cheaper grain for a more expensive grain in their animal feed. this increases demand. they also stop growing that grain and replant with the more expensive grain. that decreases supply
etc.
when a commodity becomes cheap, people find alternate uses, and the supply/demand curve changes due to a # of factors (as noted) not to mention speculator demand, etc.
the problem with the high prices thang is that commodities have an "effective bottom" for a # of reasons, but NOBODY knows where the top is.
corn has been in a frigging insane bull market recently. MUCH more intense than the stock rally.
nobody knows when it will top
