Today in class I was struck by the oil price graph. As was indicated by the graph, around 1980 oil prices hit its apex and since have been somewhat stable over the long run. What disturbed me was the general ascension in prices up to today. I know that this increase in prices has nothing to do with “dwindling” reserves, so what is the reason for the steady increase in price? At first I thought of the political factors (war in Iraq, etc.) but oil prices can not be on the rise only b/c of this single factor. I picked up this essay off of the Cato Institutes “Regulation” publication. As I understand it, the problem with the instability in oil prices is due in large measure to OPEC’s manipulation of oil production. My question is why we continue to do business with OPEC if they persist with their price gouging techniques? Why don’t we try and adopt more conservationist policies with regards to oil consumption? If we can’t control the supply side of the problem due to high costs then we should manipulate demand in a way that forces OPEC nations to stop there manipulation of prices and lower the price of oil.
4 Comments:
Your idea of adopting more "conservative policies and controlling the demand side of oil prices" sounds good but I have to ask, How? We have discussed before in class that alternatives exist but that the costs of these alternative methods is extremely high. Unfortunately the fact that OPEC has so much control over oil prices does not appear to be enough of an incentive to change consumption. Stronger incentives must be created, and at the moment I don't know how to implement those incentives or what they are for that matter. That my friend is the source of the problem and until we figure it out we will continue to be dependent to some degree on OPEC prices.
Everything is about placing the right incentives. The problem with controlling the demand side of oil is exactly what JD said, How? Until prices become so high that we refuse to purchse the oil, we will not be willing to develop new ideas and fuel options. The correct incentive isn't in place. Right now prices are inconvienent, not outrageous, and so although we complain their is no pressing demand for a new solution.
This is a pretty good article, but I just can't see the logic behind the statement: "When will the oil run out? The best one-word answer: Never."
As the author explains, "growing knowledge lowers cost, unlocks new deposits in existing areas, and opens new areas for discovery." But even with the complexity of economics, supply/demand, production forcasts, etc., unless oil deposits continue to grow underground, there is a finite quantity! Finite means having bounds, limited; existing, persisting, or enduring for a limited time only.
I agree that human ingenuity can and probably will overcome our dependence on a finite source of fuel, but the stance that all we need to do is play the market right is irresponsible. The Venezuelans had the right idea when they advocated "plant the oil".
Sarah summed it up pretty well: the correct incentive isn't in place.
I agree with Lisa and her assesment that oil is indeed finite and will eventually run out. However, I agree with the author of the article that OPEC is problematic and needs to get a "wake up call." Just as our economy is dependant on foriegn oil, OPEC economies are dependant on the purchasing of their oil. Before reading this article I agreed with President Bush's stance that we must not touch our strategic reserves unless a real emergency develops. After reading this article I think that we should show OPEC that our patience with them is running out. We should open up our strategic reserves and thus force OPEC into reality.
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