Quote:
Originally Posted by marlinspike
Ok, so we become oil independant. Of course, because we're pumping it all with American labor rather than illegal immigrant Pakistani labor, the costs of production skyrocket, but let's ignore that for now and presume that the oil companies' costs drop because of this.
So their costs drop. What is there to drop the price? Where is the downward pressure in the automobile fuel market? They'll charge the price that makes them the most money, which may well be $4/gallon since even at this price people have only changed their consumption so much (i.e. demand for gas is inelastic). There isn't the invisible hand of competition to push the price down because there is very little competition in the sale of automobile fuel.
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OPEC is the single major contributor to the price we see gas at the pump. A combo of 13 countries: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
Together, these 13 nations are responsible for 40 percent of the world's oil production and hold the majority of the world's oil reserves, according to the Energy Information Administration (EIA). When OPEC wants to raise the price of crude oil, it simply reduces production. This causes gasoline prices to jump because of the short supply, but also because of the possibility of future reductions. When oil production dips, gas companies get nervous. The mere threat of oil reductions can raise gas prices.
In April 2001, OPEC decided to reduce its collective production by one million barrels per day. This was at the same time that American consumers saw gas prices rise, hitting an average high of $1.71 per gallon on May 14, 2001.
OPEC increased its production in June 2005, when it raised to 28 million barrels per day with an increase of 500,000 barrels per day pending changes in oil prices. In September 2005, it made all of its member countries' "spare output" available, an estimated 2 million barrels per day. However, in November 2006, OPEC again reduced its rate of production by 1.7 million barrels per day to keep the price from falling below $50 per barrel [Source: Joint Economic Committee ]. OPEC's estimated production for the first quarter of 2008 was an average of 32.3 million barrels per day [source: EIA].
Beyond OPEC, there are several other countries that contribute to the world's crude-oil supplies, including the United States, Mexico, Canada, Equatorial Guinea, Russia and China. In February 2008, the United States imported from Canada approximately 1.9 million barrels of crude oil per day [Energy Information Administration]. OPEC tracks the oil production of these nations and then adjusts its own production to maintain its desired barrel price.
Bottom line, eliminate dependency on foreign oil, eliminate the cost as well.
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