Comments on: Oil Tetris

By: Daniel Lord

Daniel Lord — Thu, 11 Dec 2008 20:23:16 +0000

And now that oil is, temporarily down in the $40 range until OPEC can cut back production enough that hedge funds start speculating in it again. President-elect Obama has a chance to act. But the dropping price of oil has, as it has in the past, removed any significant sense of urgency in the public for energy policy reforms and action. Let’s hope President-elect Obama steels his resolve and tackles it anyway. The problem didn’t go away–it is merely in remission for a while.

By: Erich Vieth

Erich Vieth — Mon, 22 Oct 2007 03:34:40 +0000

Just consider: when it becomes “news” that the cost of a gallon of gas increases by five cents, it can only be because this country is horribly overdependent on oil as a source of energy. And it’s not something we might need to address someday. Rather, we’ve already entered the period James Kunstler has deservingly titled “‘The Long Emergency.” See his book: The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century (2006).

It is truly amazing that our so-called leaders fail to react when tiny changes in the price of oil send media into convlsions and set new rounds of intense discussion at office water coolers. We need to immediately implement draconian conservation measures. The window of opportunity is small, if it still exists at all.

By: Doug

Doug — Fri, 14 Apr 2006 18:17:56 +0000

One can better understand the problem that SUVs cause for the American oil economy by relating it to the economic concepts of fixed and variable costs. In a household (for example), costs can be categorized into either fixed costs (those that are INDEPENDENT of activity level) or variable costs (those that are DEPENDENT upon activity level). Thus, a cost such as a monthly mortgage payment will be considered fixed, because it is essentially constant regardless of how much activity happens inside the building. By contrast, a cost such as electricity will be considered variable, because it changes depending upon how much energy is consumed from one month to the next.

What is most significant about fixed and variable costs is the very different burdens they place on the person who pays the bills. The more fixed costs a person has — a mortgage, a car payment, a cable bill, a credit card bill, etc. — the greater danger the person is in from fluctuations to his or her income. Conversely, the fewer fixed costs a person has, the more the person can adjust his or her financial obligations in response to fluctuations in his or her income. In particular, the person can reduce his financial obligations in response to reductions in his or her income, thereby remaining financially stable.

Now, consider the SUV. An SUV is like a high fixed cost on the US demand for oil, because it creates a demand for oil that cannot be (easily) reduced in response to fluctuations in supply. People who must drive a certain number of miles per day must consume a certain (large) number of gallons of gasoline to do it. By contrast, if everyone who drives an SUV today would switch to a vehicle that uses less gas, it would reduce the fixed cost, creating more stability in both the supply and the price of gasoline. In other words, worldwide demand for gas would not be so perilously close to its maximum supply level, and there would be more latitude to absorb a sudden reduction in supply.

Unfortunately for all Americans, such stability will not appear anytime soon. Not until either more gasoline supply comes on line, or until aggregate gasoline demand is reduced.