Oil, Affecting More Than Prices at the Pump How and Why?

In the early 1980's we were faced with the Iraq-Iran war which caused gasoline prices to soar, the a national average of 3.29 a gallon. Now we have surpassed the highest national average and are in danger of pushing the four dollar mark for a gallon of gasoline. Since prices were just as ridiculous back then, why are we not waiting in line at the pump, why is there barely a blip on the radar now a days? As appose to almost thirty years ago we have adjusted today's current prices with inflation. In 1980 the national average rose from 2 dollars to 3.29 in less than one year. A sixty one percent rise in the price in less that a year. Today that is equivalent to gas being 5.63 a gallon by next spring. In addition, under President Carter's office there are strict rules and regulations that were imposed to control "Big Oil" to counteract what was seen in the seventies and early eighties.

With "proven reserves" on a steady rise why are gas prices still rising? Proven reserves can be a misleading term there are two types of "proven reserves" "Proven Developed" and "Proven Undeveloped". Proven developed meaning, the oil that has already been pumped and put into reserves. Proven undeveloped is oil that has yet to be extracted from the ground; this also may mean there is a possibility we may not be able to extract it. Also the term "proven" might not be what one expects either, proven is used because we are ninety percent certain that we have or are capable of attaining that much oil. The reality is that we are not absolutely certain that we have all this oil, nor have we associated any opportunity costs with searching, extracting, and refining this oil, if it is in fact there.

The fact of the matter is "Big Oil" is setting record profits, so where is this money going? This money in large part pays out huge dividends to stockholders. One must remember that oil is a public market. Shareholders receive a large amount of profits made. Also the risk and costs associated with finding, testing, drilling, and refining oil can be very high. A company may invest tens of millions of dollars into researching and probing a well, only to come up empty handed and more often then not they will. "Big Oil" can take these risks because their positive opportunity costs outweigh the negative. Taking a hit for a few millions dollars is worth it when there is a possibility of finding a well that can produce oil for one hundred years and make you a trillion dollars.

America's gas prices continue to rise but, this does not seem to greatly affect the purchase of SUV's in the US. A smaller more fuel efficient substitute, is out there and most likely its cheaper too, so why are we still buying these gas guzzling behemoths? The fact is when one makes a purchase, more thought goes into it than just the idea of prices at the pump. 3) Safety is a big issue for people who drive smaller cars. Today's more "fuel efficient" cars sacrifice weight and safety to be more fuel efficient. In addition, more costly substitutes (i.e. lightweight metals) go into making cars more fuel efficient rising the price of more fuel efficient car. Since 2004, death rates have more than doubled in car accidents; I highly doubt it is from a double of careless drivers on the road. By making today's vehicles more fuel efficient we are sacrificing other things, such as safety that could very well save someone's life. Also when you think of a big SUV what is the first thing that comes to mind? Chevy, Ford, and General Motors, All American manufacturers, if one wants to substitute what would be the best choice; A foreign, small light-weight car. Now, outsourcing is an issue when looking at a light weight substitutes. It may be overlooked but, one must think about what buying a large SUV entails; safety, and ultimately a man trying to feed a family in our beloved Motor City.