Barrels and Bucks

Upon the psychology of pricing oil.

We’ve all heard the people who mock SUV drivers for their big gas tanks. They’re the same people who claim that we Americans believe driving is a God given gift. They like to drive itty bitty plastic hybrid cars with bumper stickers on them predicting that driving hybrid cars will save the world. (Hubris, I say!) They’re the ones who’ve been laughing with glee as the rest of America suffers under the weight of high gas prices.

Now as the price of gas drops, I’ve been laughing, too.

I think the latest decrease in the cost of gas is an interesting phenomenon. We’ve been told, forever, that the reason why gas prices rise in the summer is because of demand. (Ditto for winter.) As demand increases, you see, so does the scarcity of oil. And scarcity of an object means that it will be more expensive. Yes? Economics 101. It makes sense, from my basic college freshman economics class level of thinking. So gas is expensive in the summer and winter because we use more of it and thus it becomes more valuable.

Or so we’ve been told.

Imagine my interest, then, to see gas prices drop recently at the pump. Imagine my shock, then, because the scarcity of oil hasn’t wavered all summer. What could be the reason behind the large decrease in gas prices?

Just before the prices dropped, the president rescinded the Executive Order banning offshore drilling. And suddenly, the price of oil per barrel goes down over $20, which translates into about a $0.30 savings per gallon at the pump here in Georgia. In my car, that’s a savings of $3.60 per tank of gas. Considering that my car is filled up about twice a week, I’m saving $7.20 per week directly from the price decrease. That’s almost $30 per month… and that ain’t small change.

It’s interesting that the president’s act alone caused the price drop. I mean, there’s little to no chance that our Democrat-controlled Congress will actually allow offshore drilling to recommence. Ever. I’m fairly sure that the people who control gas prices know this. (Though, I am happy to see the Republicans’ surprising spontaneous growth of balls today on the issue.)

[Who are the people that control gas prices? I mean, they don’t seem very friendly, do they?]

So the gas price dropped from nothing more than speculation. Which makes conspiracy theorists’ claims of mal-intent on the part of those gas price controllers seem all the more plausible. I think it’s clear that the price of oil includes more than simple economics. If it were all about supply and demand as we’ve been told, then the president’s lifting of the offshore drilling ban wouldn’t have had an effect on the price. (It makes me wonder how much of that gas price is padded by “speculation.”)

And it puts an end to the Nancy Pelosi and Company refrain that drilling offshore wouldn’t help our problems immediately. Please. We’ve just seen a $20 drop in gas per barrel because of nothing more than speculation. What would the drop be if we actually started drilling? Hell, what if we just started planning on drilling? How much of a drop would that cause?

But more interesting is the effect the price drop has had on the economy. The dollar is up. The markets gained. We’ve had real, measurable economic growth (not the piddling little half a percent growth we’ve had for a while that’s made all the boo-hooers cry “recession!” – we had almost 2% growth, which started before the gas price drop, but still).

It shows a very real relationship between the price of oil and our economy. I think it’s time for the people who’ve crowed over the high gas prices to stop laughing and help the rest of us get the gas prices down. A bad economy hurts everyone (except, perhaps, the people who want it to be bad (more conspiracies!)).

So drill, already.