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Can we just break the record already

November 9, 2007

oilprice.jpgWe are starting to hear more and more reports about the rising price of oil. The screenshot at right is the price as of midday on Friday, November 9th, 2007.

There are a few reasons I can think of for why this is getting attention:

  • it’s close to a nice, round number ($100)
  • it’s close to, or already has surpassed, the all-time record*
  • it’s something that everyone should be aware of

I would argue that the increase in reporting is much more about the first two bullet points. The media is responding to what the general public enjoys … people love round numbers, they go crazy over them (e.g., Y2K); and people love when records are about to be broken (e.g., Barry Bonds homeruns, Olympics, etc.).

In reality, however, we should be aware and rationally concerned about the rising price of oil regardless of round numbers and records. I’ve posted about this topic briefly before and have said that I am in the camp that thinks elevated prices might be good. That is, if the price of gasoline (petrol for my UK readers) is relatively high, perhaps people will start to think about our collective consumption of the important resource. But…if it goes too high too fast, this will be bad for obvious reasons.

Because I have training in petroleum geology and have some experience in the industry, I often get questions from family members or friends asking: “So, why is the price of gasoline so high?”.

To that, I usually respond: “Because you keep buying it”

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*It depends on which analysis you look to for the exact amount of the previous record adjusted for inflation. Some analyses say we’ve past it already; the highest of the various prices is $101.70. I’ll leave it to the economists to split hairs on how to figure this out. 

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4 Comments leave one →
  1. November 9, 2007 3:12 pm

    Petrol is NOT much more expensive for UK (or EU, or Japanese) readers, because the rise in US dollar price has been accompanied by a fall in the US dollar. For us, $92/barrel with a 92 cent AU dollar is the same as $50/ barrel with a 50 cent AU dollar.

    Ditto with every other resource.

  2. November 9, 2007 3:21 pm

    that’s a good point…so, from your perspective, the rise in fuel price in the U.S. is more tied to the fluctuating dollar rather than crude prices?

  3. November 9, 2007 10:13 pm

    If you divide the oil price by the euro price, you should get the answer to that question.

    You can get historical exchange rates here (I use these for taxes):
    http://www.oanda.com/convert/fxhistory

    I don’t know where your oil data comes from, or I’d do the calc myself.

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