Gas Prices -- Help at last?

Jay Honeck wrote:
Heh... and this is really the punchline. Think about it: crude oil is
far and away our civilizations most precious natural resource and it's
being sold for less than drinking water (or it had been up until now). I
don't think anyone really believes that prices like that are
sustainable, especially given that the oil supply is finite and
non-renewable.


Interesting.

a. In one corner we've got folks saying that the big, bad Oil Companies
are making obscene, HUGE profits at current prices.

b. In the other corner, we've got guys like you saying that the price
is too low, and shouldn't be so cheap.

If supply and demand is in action here, (a) and (b) can't co-exist.

It's safe to say, however, that both of these analyses are overly
simplistic. In fact, a) and b) can coexist and here's how:

a) While it might be true that the oil companies are making record
profits at the current time, I can promise you they're sweating bullets
right now about the price of gas and other petrolium products. Why?
Well, they know, like any other business owners/ops know, that there's
an upper limit to the price of their products. This works like any other
business - you want the highest possible price for your product that
does NOT reduce demand for it. In fact, any time you bump up the price
of your product you're taking a risk in this regard. You know how all
this works so I won't go into it. But I think the dynamic going on here
should be obvious.
This was an ugly, ugly lesson for the oil companies back in the 70's
when US production peaked, causing prices to skyrocket and shocking the
economy into conservation. I promise you this experience is still fresh
in their minds and a lot of sleep is being lost over it.

b) The obverse is true as well - you don't want your product priced
excessively _low_ either. There are two consequences of this: 1)
excessively low margin and 2) possibly excessive demand. Up until now,
the margins and supply have been permissive enough to allow selling gas
more cheaply than H2O here in the US.

That's no longer true, for reasons that I think are obvious. The need
for more refining capacity (big cost!), increasing
shipping/processing/etc costs, gubbamint regulation and questionable
supply (this is a dissertation-long issue here) have made the old
cheap-as-hell pricing scheme simply unsustainable.

So, you can see the rock/hardplace situation he cheap gas is not
sustainable, but TOO high of a price hike might shock the economy into
conservation which NO business would EVER want for its products....

Truth is, I wouldn't want to be an oil company right now, because
they're fixin' to get into some really hard times. The current drama
going on at the gas pumps right now speaks directly to this issue...

As I said, we're lucky to only be paying 3 bucks right now...


LS
N646F
Jay Honeck
Iowa City, IA
Pathfinder N56993
www.AlexisParkInn.com
"Your Aviation Destination"