smellthejeta said:
I guess that means it hurts!
Seriously, if the value of our dollar on the world market improved, it would contribute to much lower fuel prices. If there were really demand shortages driving up fuel prices, don't you think we'd be hearing about some country having fuel restrictions, such as what we had in the '70's?
The first part is true to an extent... if the dollar were stronger then gas prices
in the US would be a bit lower.
The fuel restrictions in the 70's were a result of intentional supply restriction on the part of OPEC, followed by a rather poorly implemented government rationing. They were flexing their economic muscles for political reasons, not any natural shortage.
The current high oil prices are a result of demand
almost equaling supply. It is a result of a very low
reserve production capacity. Demand cannot ever truly exceed supply in a free market. The more I think of it, it's like the airline industry (only the oil industry is a lot smarter).
Lets imagine that aircraft seats were a natural resource. There are a fixed total number of seats available on aircraft in the US each day. Now, if tickets were $1 then every seat would be full, and lots of people would be dissapointed that they couldn't travel that day. But since it's a free market, ticket prices rise to a point where not
every seat is occupied, just most of them. Those that can't afford it stay home. Now comes the problem. What if that price point is lower than the actual cost of operating the aircraft? Well, airlines go out of business or park planes... until, due to the reduction in capacity, the ticket prices rise to the point where the remaining seats can be sold at a break-even price. This is similar to OPEC and other oil suppliers intentionally throttling production to keep oil at a certain price. In a completely unfettered free market, however, nobody would make money because each seat or barrel would be sold for a break-even, not profitable price... so the oil companies collude and organize in ways that would be illegal domestically (monopolistic etc.) and agree on a production volume that allows for profit. If the airlines could do this then a lot of our troubles would be solved... but I digress.
Now suppose the reverse situation is true and the demand for travel is high... so high that nearly all the seats are filled at profitable ticket prices. Well, airlines buy more airplanes and add seats until things level off. But if capacity for airplane production is limited (or limited by pilot shortage, runway shortage, atc congestion, whatever) then seat prices would continue to rise until only very rich people can fly. The airlines would be making money hand over fist. This was basically the situation in the "golden days" of aviation.
Similarly oil companies increase production... until, as is the case now, production capacity is nearly met. Now there is no more "regulation" of prices at a moderate level... prices continue to rise until demand slacks off. This does not mean you get lines at gas stations, it means you get $2.70 gas at gas stations, and people drive less, buy more economical cars, etc.
I'll put it simply. If the oil companies were about to actually run out of gas, they would compensate by raising prices. They always maintain a small reserve. They always try to sell
most of their gas, similar to the way the airlines try to sell
most of their seats. If an airline sold
all its seats, it means prices are too low! And if Exxon or Mobil sells
all its gasoline, then their prices are too low!
If demand remains strong then prices just go up and up and up until demand eventually has to drop. What if gas was $5/gallon? $10? You might be tempted to bike to work... or the economy collapses, your company goes out of business, and you walk to the bread line...
