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Originally Posted by BrianE
Until recently I too used to rail at speculators manipulating the price of oil on the market.
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If anything, speculation tends to smooth volatility by averaging price spikes over longer time periods.
Quote:
Originally Posted by BrianE
Some folk have said that the recent $150 per barrel oil of the summer was all because of speculators on the market trying to find a safe place to put their money during times of great market turmoil. And to some extent this is true.
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On the other hand, oil inventories did not grow significantly during the run-up in prices over the first half of the year, as we would expect if the price were significantly the result of speculation rather than supply/demand. What eventually happened is that the prices got so high that demand plummeted (amid a general recession in economic activity). As soon as reserves started piling up, the oil price started falling again.
Quote:
Originally Posted by BrianE
This past summer has also conviced me that the price of oil should definitly not be regulated.
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It's probably impossible to regulate oil prices as such, but I strongly support regulating the price of gasoline by imposing a very large fuel tax (i.e. regulating a floor price rather than a ceiling price). Here are my reasons:
1. When the fuel tax is a higher proportion of the total, fluctuations in the price of oil have less influence on the price of gas. For both consumers and businesses, a
high but predictable price is superior from a planning perspective to a
highly volatile price.
2. The steadily higher prices send a clear price signal to automakers to invest in more fuel efficient cars. It's no surprise that car companies whose primary markets have low but volatile gas prices are struggling with business models for gas-guzzlers while car campanies whose primary markets have very high gas prices have thrived during the run-up in gas prices and are still financially sound through this recession.
3. Industrialized countries with very high fuel prices have living standards that are comparable to ours - and even drive about as much as we do, albeit with more fuel efficient cars. The common explanation for why Europeans can get away with smaller cars is that their cities are more compact and closer together, but the evidence does not support this view. North Americans drive around 18,000 km/year on average, whereas Europeans drive a little over 17,000 km/year - only slightly less. The difference, of course, is that European cars are far more fuel efficient than North American cars.
4. Higher gas prices provides stable funding for better municipal and regional transit systems while simultaneously sending a price signal to consumers to choose transit over driving for some trips. It also sends a price signal to developers to build more compact, walkable residential/commercial developments.
5. Finally, higher gas prices amount to a user-pay system for drivers, who currently enjoy subsidized travel on a transportation system that is paid out of general tax revenues.