Get The Sickness!

Supply & Demand for Oil

It's pretty amazing how much the price of gasoline has fallen over the past few months. About 25% from the peak earlier this year. The news says that tight supplies caused by the aftermath of last years hurricanes, refinery shutdowns and increased demand caused the price spikes. If that is the case, it appears that just a little change in supply and demand can have rather dramatic impacts on the price of gas at the pump - if you consider .70-80 cents a gallon to be dramatic.

I don't think that demand has decreased that much - actually, the declining prices may stimulate some demand. The supplies haven't increased that dramatically as there weren't really any reports of major shortages when the prices went over three dollars in California.

Prop 87, the tax on California Oil producers goes to the polls tomorrow. It will be interesting to see how the electorate votes. $47 million has been spent on the pro side with Al gore and Bill Clinton featured in the ads and $66 million has been spent on the con side saying that it will just create a bureaucracy. How much reduction in demand will it take the new technologies being supported by the initiative to reduce the cost of gas at the pump by another couple of dimes?

It is interesting that all the opponents of the initiative are focusing on a "wasteful new bureaucracy". Far be it for me to be for bureaucracies but if push came to shove, I would rather create jobs for alternative energy bureaucrats in California than protect the jobs of workers in OPEC nations. I'm all for creating some competitive alternatives to fossil fuels. We've seen the impact of supply and demand fluctuations over recent months. Let's hear it for more supplies.

posted by Michael Sick @ 3:02 PM