shinysideup

So for those of you who think the government should "do something" - what exactly are they going to do?

They could do what Europe does, and make fuel more expensive. That's obviously bad for us. They can do this through raising taxes, increasing fees, etc.

However, they can't make fuel cheaper in the long run. Simple supply and demand.

If government artificially sets the price of fuel at $50/bbl in America, all those foreign countries that sell us oil will decide that there's no point selling oil to Americans, and will take their oil and sell it to China or India or Europe where they can make more money doing it. Result? No oil!

Without oil, what are we going to do? Make oil out of thin air? Invade an oil-rich foreign country (right, that turned out great)?

mike734

Don't waste yout time iahflyr. Jungle is hopeless.

jungle

Brilliant solution. Thanks for sharing that with us. Now, do you have any actual suggestions or do you want to go to your standard fall back of putting your hand in another man's pocket to make your life easier?

It would be far better to discuss a solution. Mine is that airlines are going to have to raise fares to stay ahead of costs. Your solution is what?

DYNASTY HVY

Jungle has my vote !good post and I beleive econ 101 is not a prereq for a flying career at a carrier lol

jayray2

Oil companies are reporting the biggest profits of any business ever in the history of the world. If the market of oil was truly a free market, other companies would come in and lower prices and sell more and take the profits away from other companies. Simple economics. Do you see this happening in the oil market? How many people have the resources to simply enter the oil market and start selling gas? The economics of oil doesn't follow the same rules of normal widgets.

bbtp

shiny - this isn't a blast at you at all - i agree with you in spirit, for it is essentially a free market and there is very little government can do to put pressure on producers to lower the price of oil. but, government could help a great deal by simply getting out of the way. we have (and have had for decades) domestic energy sources that have remained untapped due to government regulations and restrictions. parts of government (specifically the legislative branch) have threatened to expropriate the "record profits" of "big oil" - something that certainly does NOT encourage "big oil," or any other potential entrants for that matter, to further invest in energy development/discovery. i don't think the US has seen a new refinery in some 20 years - due to the fact that government has not permitted such construction or capital investment.

i'm optimistic about oil prices - i have a hunch we're going to see a plateau, if not a pullback of some sort. inventories have increased significantly over the past couple of months even as prices have continued to climb (on the supply side). on the demand side, the economy is definitely weak, so demand should slacken some. some have described the most recent price rise as speculative buying (a new "bubble" altogether). all of that said, in the long run, we need to continue to free up the market in extraction/refining.

JetPiedmont

Demand is still increasing overseas in developing countries, and as it does our impact on demand lessens, even if we enter recession. IOW, we are a smaller part of the demand equation relative to the rest of the world.

jungle

You are right in that oil production and distribution is done by a comparatively few companies and fewer countries. Oligopoly is the word you are looking for.
The simple economics is that there are few suppliers, countries with net exports of oil.

FEDEX and UPS are another example of Oligopolies.

The problem with your conclusion is that anyone with enough money can start in the oil business, however there are very few countries with the oil resources needed.

http://www.eia.doe.gov/pub/oil_gas/p...nt/import.html

There is nothing to prevent Canada or Saudi Arabia from sending us all the oil we need at $1.00 a barrel if they so desire, the problem is that many other customers are waiting in line to buy that oil at the market price.

Indeed big oil companies are making record gross profits, however ther margins have remained flat. You do understand the difference?
Oil is a mighty popular item. Widgets, although they can be made anywhere, aren't a satisfactory substitute.

Eric Stratton

when clinton released some oil out of the federal reserve back in the 90's to counter rising oil prices was that government influence or not.

someone mentioned that their hasn't been a new refinery built in 20 years because the government won't let them. when one has been shut down for whatever reason oil prices seem to increase. by not allowing more to be built doesn't that cause some influence?

jungle

We were talking about the world market price of oil, the examples you cite impact short term US prices. Much like price controls during the Carter era, they only influence US prices on domestic production for a short while. In the long term they tend to make fuel more expensive.

I have already given you many examples of how government can influence prices in a detrimental fashion in the home market.

Our inability to move world market prices in a helpful manner is clearly established.

Here is an interesting read about oil price history and attempts to control prices: http://www.wtrg.com/prices.htm