Wednesday, May 10, 2006

I Don't Care About High Gas Prices

And neither do you. How do I know this? By and large, there have been no changes in driving habits. I'm not driving any less. In fact, I'm driving more and if traffic is any indicator, I'm not the only one (the day without immigrants notwithstanding).

Dale Franks has a post at QandO Blog examining the corollary between the price of oil and the price of gasoline and marvels at the uniformity, almost as if it "were governed by or something!" Some of the commenters to his post still challenge his post with absurd statements like, "when prices rise, margins should decline, period".

Roger Hedgecock, a local talk show host here in San Diego, took an interesting call a few weeks ago that dealt with subject in a simple, yet masterful way (paraphrasing):

Roger: "How much did you pay for your home?"
Caller: "About $150 thousand with another $100 thousand in improvements over the years."

(ed) The caller's home was easily worth $500 thousand in today's real estate market.

Roger: "Ok, so that's $250 thousand. Will you sell me your home for $300 thousand?"
Caller: "Of course not."
Roger: "What do you mean 'of course not'. You aren't going to be like the oil companies and gouge me are you?"

This was an amazing demonstration of supply, demand, and how such principles are manipulated by everyone, not just big, greedy oil companies.

Of course, the same principle works against those arguing that drilling in ANWR will somehow impact gasoline prices (either now or in the future). Let's I start the Indigent Oil Company and am awarded the rights for extraction in ANWR. I have begun and now have many barrels of oil from ANWR. The question is how much will I charge for each barrel of oil? Today, I would sell them for a little over $70 each. Period, that's it.

I know what some of you are thinking, "Wait a minute, how much did it cost you to extract the oil?" The truth is that it doesn't matter one bit; it's completely irrelevant. You don't believe me? Let's say it costs me $100 per barrel to extract the oil from ANWR. Who is going to pay $110 per barrel when it can be purchased anywhere else for around $70 per barrel? What if it costs me $5 to extract each barrel of oil. Well, like the caller with the house on the beach in San Diego, why would I sell a barrel of oil for $10, $20, or even $30 when I can get around $70 per barrel all day long.

Don't get me wrong. I support drilling in ANWR because Alaskans support drilling in ANWR, and I believe it is Alaskans who should get to decide the matter. Also, higher oil prices benefit the host nation. So, while our politicians are going after American oil companies, nations like Iran, China, Russia, and Venezuela are reaping a windfall. I prefer the United States to supply as much of its own oil as possible for environmental, diplomatic, and security reasons.

MORE: Tom Maguire


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