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Trivia Tidbit Of The Day: Part 195 -- Gas Prices & Oil Prices.

Oil Prices-

When Mrs. WILLisms.com and I were at a winery recently in Napa, California, we were prompted awkwardly by a woman to buy a raffle ticket to benefit the local symphony. The prizes were violins with colorful painted hand-painted images on them. Not really my sort of thing.

Anyway, in the course of the conversation, it came out that Mrs. WILLisms.com works for a major worldwide energy company. The first thing the woman asked was something about how the stock price had done that day. She said it almost authoritatively, as if she knew, for sure, that it had shot up that day.

We had not been following the news, so we wondered if she meant that something specific had happened, a big explosion or fire or lawuit or geopolitical event or something else. No, she commented, just that oil prices are so high. She seemed to think we must've been multi-millionaires or something, with our bundles of ever-higher-astronomically-reaching oil crony stock.

Weird.

Mrs. WILLisms.com just told her, "no, well, it goes up, it goes down..."

And I gave the woman a look like, "what kind of question was that?"

Anyway, long story short, we didn't buy her stupid raffle tickets, and in the newspaper the next day I noticed that the big giant oil company stock in question was down more than a dollar the previous day, and down more than 5 dollars in just the previous ten days or so.

Stock prices aside, what about oil prices themselves? We hear so much about record energy costs, but somehow the economy keeps steaming ahead-- and with relatively little inflation.

So what's the deal?

Well, adjusted for inflation, the cost of a barrel of oil is really not all that outrageous. In fact, Americans were spoiled in the late 1990s with historically low (probably far too low) prices. Check out the progression (and click the image for a larger version of this Department of Energy graph):

And this is just through August of 2005. In case you hadn't noticed ( and I don't blame you, as falling energy prices are never newsworthy the way rising energy prices are), we've seen a significant erosion of those nominal record highs from earlier in the summer.

Next (back to the discussion of why high oil prices are not destroying our economy), unlike the situation during the oil crises of the 1970s, we now have a Strategic Petroleum Reserve and a stronger military/diplomatic position in the Middle East. No more embargoes. No more sudden price hikes to punish us for supporting Israel or, say, going to war in Afghanistan and Iraq.

This also underscores the point that the climb in energy prices from the late 1990s has been driven by strong demand from economies in the United States, China, India, and elsewhere. Turmoil and mayhem and the threat of terrorism do factor into the price of oil, to be sure, but not the way revolutions and upheaval once did.

And one last thing to consider, and I've mentioned it before, is that the American economy is less dependent on fossil fuels than it was 20 or 30 years ago. Our cars get much better gas mileage. Our appliances are more energy efficient. And even our economy itself has transitioned from a more industrial/manufacturing/transportation economy to an information-age economy.

Previous Trivia Tidbit: Free Economies Are Better Economies.

Posted by Will Franklin · 24 October 2005 04:05 PM

Comments

Posted by: Rob B. at October 25, 2005 11:01 AM