Why Gas Will Be $3.00 By Labor Day Part II

July 26, 2008

Signs of trouble in oil rich countries

Rising oil prices are forcing consumers to do with less, which in turns means some countries are unable to sell as much. Even though some companies are seeing record profits, other forces in the oil business are not having such positive effects. Both Venezuela and Iran are having economic problems and as their economy turns, so does the amount of revenue the government has.
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Venezuelan President and dictator in chief Hugo Chavez wanted to cut production of oil, not just by Venezuela, but of other oil producers. This artificially cuts the supply and drives up the cost of oil. However, cutting out supply simply ends up cutting back demand. However, as we watch demand cut back, the amount of money being brought in by oil producers will also decline, thus forcing some producers to increase their output in order to retain the amount of revenue. As we see in Venezuela and Iran, the amount of money being brought in by the oil producers isn’t as great as they had anticipated and we will see an increase in oil output shortly.

Add to that that the oil rich country of Iran is now seeing gas lines, the Iranian government won’t have the money it once did to seek out nuclear weapons. Though the Iranian government is very adamanant about acquiring nuclear weapons, not having the money to do so tends to put an end to such ideology. With the prospect of war becoming more of a vague memory with each passing day, the prospect of an even further shortage disappears.

An Overzealous Democrat Congress Inadvertantly Killing Green

It’s common knowledge that the Democrat congress had no intentions of opening up off shore drilling, or drilling in ANWR, or anywhere else that we could have drilled within the United States. Whether it’s selling oil to Americans or selling oil to Europeans is really irrelevant. A barrel of oil cost the same whether your buying it in the United States or buying it in China. What matters is supply and demand and by increasing the supply we help contribute to the meeting the demand somewhere. Even if most of the American produced oil is shipped overseas, we would help reduce the demand of oil that the other oil producers are expected to meet and end up driving down the cost of oil.

By congress refusing to lift bans on drilling and/or to allow more drilling, the prospect of future shortages kept oil prices higher than they would have been had we simply opened up more locations. Oil prices still would have increased, but since the increase would not have been as much, the impact on the economy would not have been as great.

Had gas risen to $3.50 a gallon rather than over $4.00 a gallon, alternative means of energy would still have been as desirable, but would also have been more affordable. As production cost rose, so did the cost of everything else. Simply put, oil prices made the ability to acquire alternative energy less affordable. Example, as the Toyota Prius became more expensive to manufacture and more expensive to ship, the consumer, now with less money in his pocket is looking at a more expensive product and can not afford to purchase it. It’s not just the Toyota Prius but in many other aspects of our lives. The tankless water heater might not be as affordable to the consumer, but because the amount of money he’d save is a desirable product, just unaffordable.

When the price of gas falls, the economy will be a more celebratory economy, rather than a green economy. With it dies sacrificial green thinking.

The best thing for the consumer

…is that gas prices continue to stay at or around $4.00 a gallon. The longer gas prices stay artificially high, the larger the surplus in supply is, the more new high gas mileage cars are purchased, and most importantly the more deeply embedded in the minds of consumers that gas is more of a luxury than a necessity and their newly found driving habits become permanant. We might not see gas at $1.00 a gallon again, but we’ve seen the end of $4.00 a gallon for a very long time to come.



  1. […] gallon in 2008, we did a two article story why gas prices will be $3.00 by Labor Day (Part 1 here, Part 2 here). Though we were wrong about gas prices dropping to $3.00 a gallon by Labor Day, we were right in […]

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