Where is the cost of oil coming from?
So people who are paid allot more than me, and are educated allot more than me have tried to tackle this question. Where is the proce coming from? How can we stop it? And who is making the money. So I tried to come at it from a simple premise from one of my favorite movie franchises.
“Follow the rich white man”
In this case we also have OPEC so follow the rich man will suffice.
Many people have tried to tackle this from many different angles. Is it the speculators? Money grubbing investors who buy early harvests of oil and sell it later at higher market prices? Is it the oil conglomerates? OPEC and EXON pinching your cash in times of need. Is it the government taking huge amounts of taxes off every dollar you spend at the pump? It isn’t any of these things.
So where is the expense? Demand. In one simple elegant word you can begin to possibly see, or maybe you can’t. So allow me to expunge on this topic. As the reports have it now the actual supply of oil has begun to curve off into a flat plain. You would see this when any limited resource has begun to be exploited to the fullest. This is happening in the wake of a huge demand surge from India and china (other economies too but the biggest ones are India and China.)
What does this mean exactly? Well basically we (the US) are competing with mainly china for shipments of oil. Taking this into account there is only one way to drive down the price of oil (this is why the hippies win): STOP BUYING OIL. Yes you, the one reading this article. That is the only way your going to affect the price. Yes I realize the country will need oil, but do you need so much? Do you really need to drive an SUV that gets 12 miles to the gallon to the store 2 blocks away? Do you really need to commute on your own to work and back every day? Could you take the bus? Could you walk? Could you carpool? Most everyone will answer yes.
Before anyone says anything about this allow me to pass along the fact that I don’t even own a car. Not because I’m a tree hugger or anything I’m just cheap and have a decent public transportation system in my city.
So why now everyone asks? Well if we looked at the graph below, which shows global production VS global demand, we can see a trend. Now if you took this graph, took off the product and sat it down in front of an economist he would probably come to some pretty elementary conclusions. He would probably say the point in mid 2006 when supply began to plain out and the demand continued to rise, that’s the beginning of a price hike, and it wont stop until the supply levels off with the demand.
see graph here
He could throw out some other options but they don’t apply here. He could point out an increase in production would give way to a drop in price, but globally we have pretty much exploited all the places we can for oil. There are ways to increase supply but the increase would be marginal, and the cost would be greater than the benefit. The other option he would front is simple. Use something else.
So there you have it. Any freshman in economics (if they even teach that class in high school anymore) could have said the same thing. We try to bog this problem down so we can point the blame somewhere, and not actually present a solution, but the solution is simple, we either need to start seriously looking at alternatives, or bomb the shit out of China so they don’t increase the demand. Now the reason we haven’t done the second is obvious. The reason we haven’t really done the first like we should…now for that you should follow the rich white man.
