Consumers Help Lower Oil Prices: That’s Hot

Daily O'Collegian, Brandon Mcvey
Published August 25, 2008

I’m happy to announce that oil prices have collapsed from their $147.27 high from July 11. In the immortal words of Paris Hilton, “Energy crisis solved.” Well, maybe not. This temporary dip in prices does little to negate the worries of some analysts that oil prices will reach $200 per barrel in the middle term. And you probably still have lingering memories of trying to find the market value of your arms and legs. So, the question becomes, whom do we have to thank for the drop in prices? Was it President Bush removing the Presidential ban on offshore drilling in certain areas— incidentally the moratorium that his father established? Did Obama convince everyone to check their tire pressure? Or has McCain’s rhetoric about energy independence scared OPEC into lowering prices? The answer is: none of the above. You lowered prices. Good job. Feel free to high- five the guy doing the crossword next to you. In economics, the price level of a good or service is set by the interaction of the concepts of supply and demand. When prices reach an unsustainable level, demand wanes and prices reach a new, lower equilibrium. Reports of decreased demand in the United States and other developed nations triggered this mechanism in the market. In the end, conservation—simply people driving less— provided a short term easing of prices. Realistically, conservation is the only short term answer when it comes to energy policy. Bush’s removal of the Presidential ban on offshore drilling is a symbolic gesture that wouldn’t affect the markets because Congress still has the ban in place. However, it’s not altogether clear whether even the removal of the Congressional ban would ease prices. The discussion of offshore drilling in politics has really only had two groups involved: the politicians who say it makes for a good energy plan, and the voters who just want prices lower. There seems to be a group left out, namely the private sector— the people who would be doing the drilling. It’s rather misleading to leave out the means to the end, because do we even know if the oil companies want to drill more? Maybe they like where oil prices are. Their stockholders certainly are enjoying the results. While the news of record-breaking profits needs to be considered against how capital-intensive the industry is, I’d say that most oil companies have been pretty well off this summer. Moreover, the Bush administration has opened up millions of acres of public land for oil and gas development over the course of the past seven years, according to an Environmental Working Group analysis. The fact is, leasing formerly protected areas to oil and gas interests really hasn’t done much to slow the trend in rising oil prices. Why should this time be any different? The issue of ignoring the private sector when considering energy proposals is quite an egregious error. Companies don’t have a responsibility to follow political platforms, regardless of the party. Certainly a government can provide incentives like tax breaks to influence a company’s decisions, but ponder this: how many out there would support giving a tax break to ExxonMobil? In the meantime, I’m going to take another thorough look at Paris Hilton’s energy plan.