Wednesday, March 12, 2008

The Effect of Rising Oil Prices on Everyday People

Oil pricesI'm taking public transportation. There, I said it. Only two weeks ago, I talked about how oil sped past the $100 mark. Shortly thereafter, I complained about my commute and how I was going to start taking the train to work. Well oil hit $110 a barrel today. Up until recently, you haven't seen the spiking price of oil translate into higher prices at the pump, but I think that is about to end. The odd thing is is that there is no reason why oil should be this high.

I liken it to the speculation that was rampant in the housing market. Nothing was supporting the run-up in housing prices other than the fact that lots of other people wanted to buy houses despite the actual lack of demand for housing. The same thing is going on here. There isn't a high demand for oil. People, like myself, are starting to take a hard look at alternatives. The supply of oil is actually rising, not falling, so it is clear that there is actually an oversupply of oil at these prices.

At some point, like housing, oil prices will retreat, fundamentals always catch up. That's not to say I don't think it will hit $120 before too long. That's the thing about speculation, it can go far longer than you ever expect. I thought housing was crazy in 2004 but it went on for several more years.

Most people can't change their routine very easily. Either there isn't convenient transportation to work or there really is no alternative to driving. So the money comes from somewhere, and it has to come from either savings or from spending diverted from somewhere else. With the economy already in a recession, that is going to make the situation that much worse.

How has the rising price of gas affected you?


  1. If you move to New York, you can use the subways and not have to deal with all the expenses of a car. Yes, the subways are very, very reliable and convenient.

  2. Yeah, but but while you save with the one hand, you pay with the other. Cost of Living in NYC is ridiculous, no way not having to drive makes up for that.