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Friday, July 22, 2005

The grand oil conspiracy

Folks often claim that there is a grand conspiracy by the big oil companies to manipulate price and "gouge" the consumers. Others insist that there is no connection between price and cost and that when costs go down, prices do not follow - at least not very quickly. This debate was batted around on the ECON-LAW listserv recently and the most compelling picture I saw that relayed the idea that when costs fall eventually so too do prices was this one:

As we are at $2.45 for premium out here in the Dallas area, the media hasn't seemed to make such a big deal out of the "all time high" fuel prices as they did back in the Spring. Nevertheless, prices are high at the moment and economics would predict that with greater price the greater the quantity supplied. Unfortunately, it does take time for new oil rigs to come on line. Here are the rig counts for the 2005 calendar year from Baker Hughes rig counts.

Link to the first graph isn't working.
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