Before I entered college, people would warn me that much of what I would learn over the next four years would be relatively worthless in the real world, outside of how to cook a three course meal in the microwave and use a newspaper to open a beer bottle. Being an assiduous freshman, not yet fed up with the “overwhelming rigors” of college life, I went to prove everyone wrong.
Crude oil prices have reached an all-time high with gas stations accepting cash, credit and, occasionally, the first born. So, with nearly two courses of introductory economics, a partial understanding of Nietzsche and Sartre, and little life experience under my belt, I set out to answer the question that neither Barack Obama nor Hillary Clinton, nor even the researchers who feed President Bush his information through that hidden earpiece could answer — why are gas prices so damn high?
After about a week’s worth of reading, researching, interviewing, drinking and researching, I came to the most logical answer: There is no sensible answer. This is not to say that high gas prices cannot be explained, because they can. However, the reasons which I will explain below defy most principles of markets, supply and demand, and common sense — which is why you rarely see any of the talking heads on television actually examine them.
Reason 1: Greed. This answer is probably the one with which most people will agree. There are a limited number of big oil companies, each of which has significant market power. If these corporations choose to collude, in other words work together to make overwhelming profits, they could drive prices up. Oil conglomerates are making record profits and the numbers exemplify just how heinously they are burning the average consumer. Exxon Mobil made history with profits of $11.7 billion in the first quarter of 2008. In 2007, Exxon made $1,300 a second.
Reason 2: Supply and demand illusion. With every new piece of bad news (political trouble, natural disasters, refinery breakdowns, etc.), the price of oil shoots up. This is known as episodic shock. The reality is, though, that the supply of oil remains relatively unchanged. Most Americans are deceived about where our oil comes from and how limited the supply actually is. The U.S. imports the majority of its oil from Canada, followed by Mexico, with Saudi Arabia coming in third. Other sources include Nigeria, Venezuela, Angola, Iraq, the U.K. and Norway. With technology improving more and more, countries are discovering sources of crude oil, and the United States even has excessive amounts of untapped reserves in Alaska, Colorado, Wyoming and other states. To top it off, demand is actually slowing, as people become fed up with high prices and continue to become more energy efficient. Nevertheless, prices continue to rise.
Reason 3: The inability of us to do anything about it. No matter how much we complain, no matter how much we pressure our politicians, little will be done to combat rising fuel costs. Boycotting is impossible, negotiating is improbable and cutting the tax on gasoline is unlikely. The complexities of the oil industry go far deeper beneath the surface than any of us can drill. As we continue to drive our cars, oil corporations will continue to produce and refine their oil, and prices will continue to rise.