Frogs and oil, gas prices

You may ask, Matt what the heck to frogs have to do oil and gas prices? And have you finally lost your mind?

Well to answer the first question I must tell a little story, for the second question, I can’t tell.

I was told a story a long time ago that basically goes that if you take a frog and through it into a pot of boiling water, it will immediately jump out.

However, if you take that same frog and place it into a pot of room temperature water and slowly heat the water. The frog will quite happily sit there in the warm water and be very happy, that is up to the point that the water boils and of course the frog is dead.

OK, still with me?

What this has to do with the costs of oil and gas is quite the same.

A frog in boiling water

If we were to go back to 1973 just before the OPEC oil embargo, we would find the following:

     1 barrel of oil sold for $2.70
     1 gallon of gas was sold for $.35

By the time the embargo ended in March 1974, oil prices had climbed to nearly $12 a barrel, an increase of 330 percent. Gasoline prices had also begun to climb, reaching 57¢ a gallon by 1975, 86¢ a gallon by 1979, and $1.19 a gallon by 1980. Americans, along with citizens of other developed nations, found themselves waiting in long lines to buy gasoline, turning their thermostats down to 60°, and learning how to live with less energy in general. The embargo caused developed nations to rethink their dependence on fossil fuels. Research on alternative energy sources such as wind, tides, geothermal, and solar energy suddenly attained a new importance. The United States government responded to the new era of expensive energy by formulating an entirely new energy policy expressed in such legislation as the Corporate Average Fuel Economy (CAFE) regulations in the United States in 1975, Energy Policy and Conservation Act of 1976, the Energy Conservation and Production Act of 1976, the Energy Reorganization Act of 1974, and the National Energy Act of 1978.

A frog in slowly boiling water

So here we are in January of 2008, and gas prices are about $3.00 per gallon and oil trades at $99 per barrel. But if we look back at just the last few years we will see something very interesting.

During the first few years of 2000 gas prices have held reasonable stable around $1.00 per gallon, yes there were some spikes here and there, but reasonable consistent, and oil traded for between $19 to $30 per barrel.

After August of 2005 and hurricanes Katrina and Rita, Oil prices climbed to over $65 per barrel and gas was going for well over $2.00 per gallon. Oh there was much anger and Congress brought the CEO’s of the oil companies to Capital Hill to answer to rumor of price gouging. But come 2006 gas prices did drop to around the $2/ gallon mark and people were once again happy. Come the summer of 2006 gas prices climbed to over $2.50/ gallon and once again there was much complaining, but people didn’t cut back on driving. For most of 2007 gas prices have been between $2.30 and $3.20/ gallon, people still haven’t been complaining or cutting back on their driving. We are showing the oil companies that we will live with the gas price increases as long as it is slow, with no big price jumps.

So far this year the price of a barrel of oil has passed the $100.00/ barrel twice; I know that everybody thinks that it is a fluke or just somebody wanting their 15 minutes of fame. But truth be known, even OPEC has stated that they cannot increase oil output enough to make up the deficits. If we factor into all of this that China and India are currently growing their consumption of oil by almost 10% annually, rest of the world is at 2%, don’t look for gas prices to drop anytime. Since prices are now sitting at the $3.00/ gallon and once again nobody is complaining or cutting back on their driving, don’t expect prices to drop, EVER.

We need to start buying more fuel efficient vehicles, uses CFL and LED light bulbs, use mass transit or carpool, if we want to make it out of the next 5 years with anything resembling the “American way of life”. So since the prices have been going up slowly are we like the frog going to sit there until we too are boiled, or are we going to take action now and jump out of the bowl?

The choice is entirely up to you.