Tuesday, July 8, 2014
Gasoline Prices Can Go Down to 50 Cent a Gallon and We Can Work to Keep Them that Way I Had to Argue with so Called Economists that Oil Prices Are Not Inelastic in so Far as Demand is Concerned. as Oil Prices Fall People Act Surprised. Why? Lex Loeb Contributor Network . Most people don't have a clue about what petroleum is or where it comes from. For some reason they associate its value with the relatively high prices they sometimes are forced to pay for it. I had a sense of sticker shock when it cost me $80 to fill a 20 gallon tank not too long ago but now paying half that seems equally shocking because I got used to paying the higher price. I knew oil prices had to come down but did not expect the present scenario to play out. I rather expected that prices could yet move higher before becoming unsustainable. The cost of getting some barrels of oil out of the ground is as low as $1- $10 a barrel. I think the average in Saudi Arabia is about $10 a barrel. The only way oil companies including the Saudi Aramco corporation make any money is by pumping the oil out and selling it or processing it first. They also have to transport it to the markets where it is in demand. Just because they set up a cartel to limit the price does not mean that consumers should have to pay their price. I set up a website telling people just to fill their tanks half way when the price goes up and that was beyond anyone's comprehension. I clearly would have worked to reduce prices because the oil companies have to have spare space in their own tanks to know there is sufficient demand to hold up prices. If their tanks start to over fill we call it a glut. You leave your tank partly empty and theirs flows over the top. That is what is called a glut and it reduces prices. The suppliers cannot just stop pumping oil and stop shipping it when tankers are halfway across the ocean. The suppliers get in trouble fast because they have development costs including debt where by they need to continue keeping the product flowing. They can cut back and cause the price to go sky high but clearly consumers have the ability to fight back. Consumers have to form their own cartel to counter act OPEC. Oil is not exactly a rare earth mineral, It can be hard to get at but compared to digging huge open pit mines to get a few diamonds or to get 1/4 once of gold for every six tons of crushed rock processed, oil is easy. Oil also provides its own fuel for transportation to markets. If consumers want oil to go down to 50 cents a gallon (not including federal and state taxes) and stay there they should tell their politicians that they want American oil companies to have incentives to drill for more oil. This is because the American companies are not a direct compliant part of the OPEC cartel. We need our own suppliers to have reserves and capacity on hand so that the OPEC cartel cannot just set completely arbitrary prices by constricting production. There is a price point where OPEC countries break even on selling their oil per each country and a point where some of their members actually loose money selling the product. They need a modest profit margin or the cost will go up if they shut down production. The whole reason OPEC still exists and has not disbanded is there is far more oil capacity and reserves out there than they want there to be. Best thing to do is to keep US troops in Iraq to protect the undeveloped oil fields there that could rival Saudi reserves since these have not been upgraded with new technology and re-explored for about 40 years . The new technology to get more oil out of the ground is still not in place in Iraq but it is coming. Low cost oil is going to kill alternative energy programs fast the way it did the last time. Alternatives have to be competitive at the lower range of oil prices and not just the higher ones to be effective as alternatives. Even coal ,as an alternative fuel suffers when oil prices drop precipitously. This is because of the ease of drilling and pumping oil over the higher costs of digging coal out of the ground . A lot of things supposed to be inelastic were not on both the supply side and on the demand side. A free economy like the United States should go for the alternatives to oil but they need to be alternatives that can compete with any price per barrel of oil. Right now the big danger of keeping the price low is that new drilling and exploration are going to cease with the low market prices. So tell your government officials that you still want incentives for drilling now that the price is becoming unprofitable to many oil companies with the higher costs of production. US companies and others not part of OPEC Need to have lower average production costs and higher reserves so OPEC is powerless to give us the next $400 a barrel spike in oil prices. Poor Europe should be doing the same thing so that the Russians can't use oil and gas as a political weapon against them. Wait for the next Thomas Edison of energy to come around and find an alternative energy source more efficient and lower cost to produce than oil before you swing over to the side calling for what are really wasteful alternative energy plans and programs where high oil prices are required to make them economically feasible. Economic feasibility is key for the alternatives being viable long term. If we do really run out of oil then naturally they will make more immediate sense. Then we should be ready to deploy capital for the alternatives but not when some countries can pump out unlimited quantities for $1-$10 a barrel and deliver it for about the same price. Wind power may make you feel good but it occurs to some of us who have analysis skills that watching a wheel turn that generates 10 cents worth of electricity per revolution but costs 11 cents in incurred capital costs is going to prove to be the dinosaur technology even with big fancy tax credits. Making our own oil resources the alternative first to foreign cartel resources is the place to start with alternatives. .