The Unheralded Return to Lower Gas Prices

Nick Gillespie | January 2, 2007

From the Cincy Enquirer, re: gasoline prices in Ohio and Kentucky (and, by extension, the rest of the country) in 2007:

Matthew Roberts, an agricultural economist with Ohio State University, predicted gasoline prices in January would dip below $2 in Ohio and Kentucky. While prices might sporadically spike for a few days to $2.50, he forecast costs would top out at $2.30 per gallon in 2007.

He said sustained higher prices have spurred overall oil production and exploration as well as conservation. The three factors have stemmed upward pressure on gas prices.

"There's an old economist's saying that the best cure for high prices is high prices," Roberts said. "High prices have caused demand to soften at the same time there's more efficiency and increased production and exploration."

He noted that production cuts by the Organization of the Petroleum Exporting Countries earlier this month signal there's now excess capacity - contrary to the conventional wisdom that worldwide production is maxed out.

More here.

Prediction: If Ohio State loses to Florida in the BCS title game next Monday, we'll see $4 gas prices by January 10. Why? Because it'll be a sign that nothing is right in this crazy world.

Remember the glory days of $3/gallon gas here.

Comments

Guy Montag|1.2.07 @ 9:42AM|#

Great news! I can delay converting my hybrids to steam.

Unfortunatly, this will delay the shift to train oil biodiesel and soylent diesel.

|1.2.07 @ 9:45AM|#

Prices will come down for good only when the government puts a heavy tax on the oil company profits to stop them from gouging us. They should not be allowed to make such big profits, perhaps a few million a year in profit for each oil company is fair. Above that they need to be hit with a 100% windfall tax. The price go up when the evil oil corporation price gouge us. Most people drive big SUVs that use a ton of gas, it is our right as Americans and it is the responsibility of the government to fight wars to ensure that there is plenty of cheap gas so we can all afford to drive an SUV. We have got to drill anywhere and everywhere to get more cheap oil so we can all drive big SUVs, for reasons of safety we have got to get every driver in America into an SUV, they are bigger and safer than cars. All vehicles except the biggest SUVs should be banned. There is no global warming, and we can never run out of oil, the supply is infinite, it is a liberal conspiracy to keep bush from fighting for our rights in Iraq. We have got to stay the course in Iraq, now that Sodom Hussean is dead the world will be awash in cheap oil for 1000 years. We need to stop the oil companies from gouging us.

thoreau|1.2.07 @ 9:49AM|#

Jane has a new screen name!

|1.2.07 @ 9:51AM|#

All bowl games worth watching have already been played. The Buckeyes? That mascot is about as interesting and inspiring as the whole of that awful state. Aside from burning rivers and Huslter, what does Ohio really have to offer?

|1.2.07 @ 10:05AM|#

Aside from burning rivers and Huslter, what does Ohio really have to offer?

smacky?

:-|1.2.07 @ 10:14AM|#

Where are all the Peak Oil folks hiding?

|1.2.07 @ 10:16AM|#

I love the smell of troll in the morning.

|1.2.07 @ 10:37AM|#

I live in Columbus and have had enough buckeye talk to last me 12 lifetimes. I'd gladly pay for 6$ gas if I knew it would shut them up.

|1.2.07 @ 10:46AM|#

Whoa, Nick! I really don't have great hopes for my Gators, but it will be a much closer game than anyone expects--the Gators tend to play to the level of their opponents. And anything can happen in a close game.

And the article is right: we have a huge contingent of Ohio State fans here in Fort Myers. They are all here, driving 10mph below the speed limit, making right turns from the left lane, stopping the car suddenly to point at stuff, hitting the brakes randomly for no apparent reason, slowing to 15mph whenever a drop of rain hits the windshield. Oh yeah, they're here all right. Why do they call it "tourist season" if you can't shoot 'em?

grylliade|1.2.07 @ 10:46AM|#

As a Tennessee fan, I hate Florida. But I want them to win the national title game, simply because I'm sick of the whole "Michigan deserves to play for the championship" thing. Maybe that would put it to rest.

|1.2.07 @ 10:59AM|#

As a Tennessee fan, I hate Florida. But I want them to win the national title game, simply because I'm sick of the whole "Michigan deserves to play for the championship" thing. Maybe that would put it to rest.

Uh, I think USC did a pretty good job of that yesterday.

On an unrelated note, I guess one could say the free market worked again, as we pollyanna libertarian-leaning types knew it would.

|1.2.07 @ 10:59AM|#

Florida will win. I love this pre-anointment--it's hardly ever right, you know. Remember, USC was the greatest team of all time? Not even close. UF has a pretty big edge on defense and will lose only if it manages to play down to its opponent again.

grylliade,

I hate UT (despite half my family attending that overly orange institution), but I usually support the SEC come bowl time. Not sure how y'all lost to Penn State. Query: How big can Fulmer get before he explodes? :)

|1.2.07 @ 11:07AM|#

" "There's an old economist's saying that the best cure for high prices is high prices," "

Somebody should have told Richard Nixon.

I suspect the reason gas prices haven't fallen more, lately, (aside from the diabolical avarice of the Big Oil Mob) is the euro/dollar exchange rate.

Derk|1.2.07 @ 11:08AM|#

Off-topic after only 2 comments!
Happy New Year!

Larry A|1.2.07 @ 11:31AM|#

Concatenating sports, gas prices, and predictions brings me around to a point I've made before. People who keep telling us what's going to happen need to be tagged with an Earned Prognostication Average. Or in some cases a Cried Wolf Again Score.

Mike Kozlowski|1.2.07 @ 11:44AM|#

Tom-
Read your post carefully and understand fully what you're trying to say. The problem is that right now, adding taxes isn't going to make much difference. Let me try and explain my POV.

1. First, taxes are already a good sized part of the cost of a gallon of gas. In SC right now, I pay between $2.14 and $2.30 a gallon for regular, depending on what part of the state I'm in. Of that, 35.2 cents per gallon is state and Federal taxes. That does not include, by the way, local taxes that many cities and counties level as well. In other states for example, :

New York: 48.7 cents/gallon
California: 50.4 cents/gallon
Hawaii: 53.5 cents/gallon

The short version is that as of now, just about 25% to 30% of what we pay for a gallon of gas is already taxes. Where will we get the money to pay for more? Congress can lay all the taxes they want on the oil companies, but the fact is that for every penny in taxes the oil companies will have to pay, they will raise the price at the pump in order to make up for it. Do you propose that they be forbidden to do so? Congress may try to do so, but I suspect that would not stand up long before the Supreme Court. Any any effort to control prices will have but one effect - immediate and permanent shortages.

2. The oil companies do not set the price - speculators do, just as they do for most of the major commodities we use in every day life (think milk, wheat, etc.). The prices are set by the speculators, not by the oil companies. Yes, they could cut the price per gallon by some distance and still be making a profit (some numbers I've read suggest as much as 50 cents a gallon) - but then the stockholders may have something to say about it. And like every publicly traded company in the nation, the oil companies' stock is mostly owned by average citizens, not rich fatcats.

3. SUVs need to be banned? Fine. How do you intend to make people buy their replacements? It's still a free market; no one HAS to buy anything they don't want to. And in any event, there are some small SUV's out there now that have comparable gas mileage to midsize sedans - are they to be banned as well?

4. 'Drill anywhere and everywhere' - now THAT we agree on. :) There is enough known oil in and offshore of North America to far outstrip the Saudi reserves...and we will let it sit there for fear of offending the green-breasted snail owl, or whatever other reasons a badly out-of-control environmental movement and its political minions come up with.

|1.2.07 @ 11:44AM|#

PL--

I can sympathize. I am the only UF graduate in my family--most of the others went to Auburn. There is just something wrong about your own mother calling you to gloat after your team loses.

Thomas Paine\'s Goiter|1.2.07 @ 12:51PM|#

Not sure how y'all lost to Penn State.

Because the SEC is disgustingly overrated?

Thomas Paine\'s Goiter|1.2.07 @ 12:52PM|#

and we will let it sit there for fear of offending the green-breasted snail owl,

And the blue-haired retiree...

|1.2.07 @ 1:00PM|#

actually, as a futures trader, i want to amend this

"There's an old economist's saying that the best cure for high prices is high prices,"

in regards to COMMODITIES (not stocks. that's a bit of a different story and more complex)...

the best cure for LOW prices is LOW prices

the high prices corrolary does not work. this is why scale traders use a long only strategy when scale trading

commodities have an instrinsic value (obviously), whether it be corn, crude, gold, wheat, beans (BEANS IN THE TEENS!!!), etc.

for example. when a grain gets really cheap (supply exceeds demand) producers react. they begin substituting the now cheaper grain for a more expensive grain in their animal feed. this increases demand. they also stop growing that grain and replant with the more expensive grain. that decreases supply

etc.

when a commodity becomes cheap, people find alternate uses, and the supply/demand curve changes due to a # of factors (as noted) not to mention speculator demand, etc.

the problem with the high prices thang is that commodities have an "effective bottom" for a # of reasons, but NOBODY knows where the top is.

corn has been in a frigging insane bull market recently. MUCH more intense than the stock rally.

nobody knows when it will top

bill|1.2.07 @ 1:25PM|#

The problem isn't a lack of oil, it's lack of refining capacity. There hasn't been a new refinery built in America in over thirty years.

|1.2.07 @ 5:02PM|#

But I want them to win the national title game, simply because I'm sick of the whole "Michigan deserves to play for the championship" thing. Maybe that would put it to rest.

I think SC did a pretty good job putting that whine back in the bottle.

|1.2.07 @ 7:50PM|#

Thomas Paine's Goiter,

Compared to whom? The Big Ten? I think the SEC would thrive in a playoff system. We'll have that mechanism for determining the best Division 1 football program about the same time that the LP wins control of the federal government, of course.

|1.2.07 @ 11:06PM|#

Until the various geniuses vaporing about gas and commodity prices show signs of recognizing that these goods are priced in a currency that is itself depreciating rapidly, I see no reason to pay attention to any of them. Despite all of the downward pressure and short-squeezing in the markets in the fall of '06, oil prices never dropped much below $60/barrel and are now heading back up; I expect gas prices to make a similar move.

My prediction for '07? Oil and gas euro prices will rise moderately, while US$ prices for the same goods will rise sharply, especially if the EU, China, Japan and the Arab nations start divesting themselves of dollar holdings.