Despite the media focus on gas prices this year, it’s apparent that many consumers still don’t understand the root cause of skyrocketing oil prices. That is to say, they don’t comprehend the dynamics driving energy supply and demand.
NPR recently had a segment in which it interviewed drivers at a gas station. Comments gathered reveal the misconceptions:
Until people band together and cry ‘foul,’ prices will just continue to go up. And I guess the government says how much are people going to take and who cares.
If protests were an effective means to stop price increases, it wouldn’t be hard to get one started. Unfortunately they aren’t. The market is driving the price increase–not, as this comment suggests, the government. The only thing the government can do to lower prices is to increase subsidies–which would only exacerbate the problem by leading to shortages.
Everybody should just not drive for a week and see what happens, all around the country. . . . We got to be smart, we got to beat ’em at this.
What would happen? Well, the economy would crash; but if it’s any consolation I’m sure gas prices would temporarily dip with due to the resulting inventory buildup (assuming oil industry workers still went to work). It’s unclear to me who would get “beat” by this cunning plan.
I suppose consumers can be forgiven for their misconceptions when you consider the signals coming from the top. Consider the energy “solutions” being offered by Congress. The Democratic party just tried to sell a tax increase as a magic wand to right the supply/demand imbalance. Most Republicans are acting as if increasing global supply by one million barrels/day in eight years (ANWR) will be the answer for 10 million more barrels of demand (at current growth rates).
Even the “experts” who are paid to analyze oil markets can’t seem to figure out what is happening:
Two of the world’s most closely watched energy forecasters on Tuesday slashed predictions for output from oil fields outside the OPEC cartel in 2008 — more bad news for a global economy struggling with record high oil prices and tight supply.
. . .
The International Energy Agency, adviser to 27 industrial economies, cut its expectations for supply growth from countries outside OPEC to 460,000 barrels per day above 2007 levels, down from 680,000 bpd a month ago.
The U.S Energy Information Administration, the statistical arm of the Energy Department, cut its forecast for non-OPEC output growth nearly in half to 310,000 bpd from 600,000 bpd.
For several years these organizations have continued to over-estimate production and thus have missed badly on their price targets:
Partly due to the dearth of supplies outside the Organization of Petroleum Exporting Countries, the EIA raised its projections for 2008 oil prices by nearly 12 percent. Benchmark West Texas Intermediate oil prices will average $122.15 a barrel, up from its previous forecast of $109.53 a barrel, the EIA predicted.
This is but the latest upward revision. One would think that after getting burned enough times, they would be more conservative on their production estimates. But it’s a slow learning curve.
The fact is that oil production has barely increased since 2005, while demand for oil continues to grow. And there’s really no way out of this jam. New oil fields being brought online are barely keeping production ahead of the depletion rate in older fields. Protests aren’t going to create more oil. Government policies aren’t going to generate more oil.
The only way to ease the pain of the global oil crisis is to drastically reduce our need for the product, through conservation and development of alternative fuels. As the NPR segment illustrates, many people don’t yet understand this. The sooner they do, the better. Government, media, and energy industry leaders all share the responsibility of educating the public regarding the limits of our energy resources. Thus far they have failed miserably.