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GAS: Supply must outpace demand to lower prices

Letter by Hank Harwell, Browns Point on March 27, 2012 at 10:53 am with 9 Comments »
March 27, 2012 11:15 am

An article entitled “Drilling doesn’t lower gas prices” (TNT, 3-25), claims what the title implies. On the first day of an advanced statistics course I took in college, the professor told his students, “Statistics don’t lie, but that doesn’t say anything for statisticians.” Apparently that holds true for pseudo scientists, journalists and AP reporters.

The Associated Press reporters who wrote the article would have readers believe increased drilling will not reduce gas prices. However, they fail to consider an important factor – the rate of increase in supply compared to the rate of increase in demand. If supply is increased but demand is increasing even faster, there will be upward pressure on prices. To reverse this situation, the supply will have to increase at a rate faster than that of demand.

Surely, the reporters must know that when you sink a drill bit in the ground it doesn’t result in more gas at the pump that very day, but without increased drilling, gas prices will increase even faster.

A quick check of co-author Jack Gillum’s background shows he’s little more than a liberal activist who is against drilling. A journalist he is not. His article belongs on the opinion page; it’s not an unbiased news story.

Leave a comment Comments → 9
  1. And what the letter writer fails to consider how much of our refinced domestic production is shipped overseas where it makes the oil companies even more profits that had they sold it here.

  2. LornaDoone says:

    In the United States, supply IS up and demand IS down.

  3. Sroldguy says:

    “If we mistakenly confuse precision with accuracy, then we might be misled into thinking that an explanation expressed in precise mathematical or graphical terms is somehow more rigorous or useful than one that takes into account particulars of history, institutions or business strategy. This is not the case. Therefore, it is important not to put too much confidence in the apparent precision of supply and demand graphs. Supply and demand analysis is a useful precisely formulated conceptual tool that clever people have devised to help us gain an abstract understanding of a complex world. It does not – nor should it be expected to – give us in addition an accurate and complete description of any particular real world market.”
    1. http://en.wikipedia.org/wiki/Supply_and_demand
    2. Goodwin, N, Nelson, J; Ackerman, F & Weissskopf, T: Microeconomics in Context 2d ed. Sharpe 2009

  4. modyfied says:

    Bottom line-if its based on supply and demand,and they use it for justification, the oil companies will NEVER supply more than the demand; they will always make an exorbitant profit by adjusting the outcome.

  5. Pecksbadboy says:

    Hank,
    Have you been listening to Fox news again?

    This has never been a supply and demand issue. Please do a little research before you write.

  6. rooster_02 says:

    Xring has it right. If the oil companies were required to keep all domestic drilled oil in country, refined in country, and sold in country there would be lower prices and no artificial shortage. Nationalize the oil companies.

  7. old_benjamin says:

    Statist non sequitur of the day

    Decreasing demand will lower prices, but increasing supply won’t

  8. Candles16 says:

    Hank, most people like you and me want lower gas prices, granted, but oil monopolies don’t, and as long as you have politicians owned by the oil companies, gas prices will be high, regardless of supply and demand.

    If your premise that supply outpacing demand would lower gas prices, then how come Canada has higher gas prices than we do, because Canada is awash with oil. Understand that supply here in the US already outpaces demand. So much so that oil companies are exporting any surplus, in fact the whole Keystone pipeline is being built to let Canada export oil to China, none to supply the US markets.

    Recent increases in gas prices have nothing to do with supply and demand anymore, and everything to do with a subsidized industry (Big Oil) that get taxpayers price supports to keep the price of gas high. Canadian oil shale is only commercially feasible if gas prices are exorbitantly high, so the oil industry has been working hard to keep oil prices high so even the most expensive sources of energy will be undertaken and the monopolies they have guaranteed astronomical profits.

    Today Congress is debating whether to continue subsidies for oil companies making record-breaking profits, the most companies ever in world history. There is no means testing for handing out welfare for the oil companies, and we have so-called libertarians like Rand Paul calling for billions in handouts to oil companies. If you paid any federal taxes recently, you are paying more than most oil companies

    If you want to lower gas prices, call your congressman to end welfare of oil companies who don’t need it.

  9. SandHills says:

    It still amazes me that some are so ignorant to the principles of simple math. Whenever the demand continues to grow for a finite supply, then prices will continue to rise.

    Even if there is more domestic sources, there is rising demand and competition for fossile fuel worldwide – take crab legs, or more locally gueduck? clams – with such a demand overseas these two items have a very high sale value overseas versus domestic. Same with blue fin tuna where one fish can get six figures in Japan – we get the cheaper yellowfin ( and in some cans what looks like even scraps of the cheaper species).

    Whatever domestic oil we drill will be sold – as per capitalist demand – to the highest bidder. And oil, just like land, is a finite resource – surprising how many people have been born since that first photo from Apollo 8 astronauts that showed our small blue globe Earth – don’t realize that.

    Every year more and more 16 year olds want to drive – as well as those in China and India – so the demand , matched with a finite resource, is like a candle burning at both ends.

    So any new domestic sources of oil will still be at the mercy of the global economy/demand.

    Simple math, eventually gas, like everything else, will meet an affordability scale – either you can still afford to drive a large gas-guzzler alone or be forced to car pool in a compact geting 40mpg, or walk. Just like car prices, some can have Bentleys, some BMWs, some a use Kia, and some mass transit or two legs.

    Again, amazing that some can’t do the math. This is not pro-drill math or Sierra Club math – it is simple math.

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