Gas Prices on the Rise^^^

With the War in Iraq improving daily the news has turned to rising energy prices and the weakening of the U.S. economy. This is a fun time for me because the debate is centered on a subject that I have given much time to studying. This post will be split into a number of posts so that slowly we can learn why prices of energy have risen and put an end to some of the economic fallacies that are involved.

Gas prices rise for a number of reasons. Supply and demand, taxation, war in the Middle East, speculation, environmental protections, regulations, the falling dollar, and more are the reasons. Today lets focus on Supply and Demand. Anyone who knows the basics of economics knows that supply and demand effects the prices of a good. More supply causes prices to fall while lower supply causes prices to rise. More demand causes prices to rise while lower demand causes prices to fall.

Throughout history American entrepreneurs have created new ways of energy. Years ago we used the mule. Later we invented the steam engine and even later used coal burning which is still used today in many areas of life. Finally Oil became available. With the help of John D. Rockefeller and his creation of Standard Oil, this resource became available to many and eventually most everyone in the country. Prices fell because Rockefeller created ways of raising the supply of oil and thus causing prices to fall to levels where more Americans were able to use it. Today oil companies around the world search for oil. Exxon being the largest company in America but not near as large as many Middle Eastern oil companies. Today there are several oil companies in America although some are small and a small few are by far larger than the rest. The problem today is that oil companies are not producing more oil in correspondence with rising populations and thus demands

In 1995 President Clinton vetoed a measure that had passed the Congress allowing for oil drilling in ANWR (Artic National Wildlife Resort). This and Senators continuing to vote against any new measure to drill in ANWR has kept the estimated 10.4 billion barrels of oil there off the market. For every gallon of oil that is drilled, 27 gallons of gas can be created. This along with 85% of our continental coasts are off limits to domestic drilling by American companies. This took out what the U.S. Minerals Management Service has estimated to be about 86 billion barrels of oil and 420 cubic feet of Natural Gas off the market. I said "domestic" drilling because just 60 miles off the coast of Florida, China in cooperation with Cuba does drill for oil there. I wonder if American Companies could begin drilling there how many more barrels of oil could be found to exist. Remember these estimates rise all the time as oil that was not expected to exist has been found from time to time.

Many praise President Clinton and many Senators for their efforts to save the environment. Since 1969 of the more than 7 billion barrels of oil pumped off the coast only .001 percent has spilled. That is one-thousandth of one percent. So much for the claim that drilling for oil damages the environment. Today the Congress is controlled by Democrats and in the past enough Republicans have walked across the aisle to vote down any measure to drill for more oil.

So as the population has increased, our economy continues to grow meaning the use per person has also increased, more people move further away from the city, requiring more gas to drive, and the populations of China and India beginning to use oil for energy, you can imagine how the demand for oil has risen dramatically in recent decades. Should it even be a question as to why gas prices have risen so much? Without the production of oil and refining of gas rising at the same levels as the demand for that oil rises the price will continue to rise.

The next post will talk more about the demand side of the equation and explain other reasons for the rise in the price of oil and gas.