Wednesday, June 13, 2007

Can the media impact gas prices?

I've seen this title before and I'm going to take a different direction in answering this question from most. Most stories which ask if the media can impact gas prices generally have one of two views: 1) Can the media, through persistent and vocal "calls to action", cause those evil, greedy, price gouging oil companies to lower their prices in deference to the poor? or 2) Does the media, through scare-tactics and overemphasis of a non-story, cause gas prices to skyrocket?

My thought is a little different; a little longer in scale. What if the media's criticism of high gas prices have actually created an environment where it is no longer in the oil companies best interest to increase supply?

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Over the last several years, whenever gas prices go up, there is a constant criticism of oil companies by many in the media. Cries of gouging and beratement of profits and CEO salaries are frequent. Shortly following this, there is a push of substitute energies and alternative fuels. Between this and the constant barrage of global warming warnings, there is an ever growing motivation for people to move off of oil/gas. Currently we are enjoying $3+/gal gas. Many blindly call this a ploy by the oil companies, however, others are pointing out that the price of oil is $10/barrel cheaper this year than last when the prices were slightly cheaper. They then call attention to the fact that much of the influence on our supply of gas is the ability to refine it from oil. As many have noted, the refining capacity (amount of oil we can convert to gas per day) is virtually the same now as it has been for 3 decades since there hasn't been a new refinery built in over 30 years. This does NOT mean that the demand for gas has similarly remained static. Economics 101 says increased demand and static supply results in increased cost.

Now, here's where the media comes in to play. As they've pushed new sources of energy and alternative energies, they are TRYING to create an environment where we lower our usage/need for oil/gas. What if the oil companies believe them? If the oil companies prognosticators look at oil in 50 years and see an End-Of-Life. What motivation is there for them to spend millions/billions of dollars to create additional refining capacity now if the demand for gas will begin to decline in the next few years? Business-wise, it makes more sense for them to wait out this last peak (as they see it) in demand before it begins to decline and alternative fuels begin to take over.

So in the media's constant criticism of high gas prices and push for new fuels, have they themselves been (unintentionally) complicit in the rising of current prices?