A significant drop in the price of gasoline was noticed ó and applauded ó at some stations by many motorists over the weekend, raising slim hopes that a combination of factors might lead to even lower prices. Could gasoline ultimately fall back to $1 a gallon? That seems unlikely. Will it ever be as low as $2, or even $3? Who can predict?
Consumption is down and still declining, easing the pressure on demand. The Saudis have indicated that they will increase petroleum production by 200,000 barrels a day in July, on top of the 300,000 barrels a day this month, but Wall Street wasnít impressed ó itís not considered enough. Oil prices went up again Monday.
Americans find themselves in a situation where itís difficult to know what would be best for the future, and the oil-rich producers in places like Saudi Arabia are in a similar situation. What would happen if oil reserves now off-limits to exploration are opened, existing producers open the tap, and/or additional refinery capacity is brought on line? Lower oil prices would certainly ease pressures on business and household budgets and heat up the economy, but would the old ó and generally acknowledged bad ó habits return? Those would be habits like unnecessarily wasteful vehicles, disdain for mass transit and inefficient use of other forms of energy.
For the Saudis, itís a fine line too. They can continue to reap the windfall of higher prices, but that only pushes their addicted customers into alternative ways of powering their cars. Sales will ultimately fall, and the goose will no longer lay those golden eggs.
Oil producers who are boosting production are not doing so because they sympathize with families who are canceling vacations and redirecting disposable income because of gasoline prices. They are keeping a watchful eye on their own bottom lines, to be sure, but the another watchful eye is on whatís best for themselves in the long-term.
Americans would be prudent to do the same, although itís not necessarily the easy choice to make.