smkettner wrote:But there IS an oil shortage. There is a shortage of $20 crude oil. Plenty of oil at $200. Todays equlibrium is about $100 so that is the price we pay. If drilling will bring in some $50 oil then it will tend to reduce the price but all oil is settled at the equlibrium. This is how a free market works. Your neighbor may not understand that.
Well, it is more complicated than that. There won't be more oil at $200, because of the severe demand destruction that will happen at that price. Demand destruction is another way of saying poorer people won't be able to afford gas - and those poorer people won't be in poor countries like China & India, but here in the US.
The problem is, oil's demand is quite inelastic vs price. So, the price has to raise quite a bit to destroy enough demand so that demand comes down to supply level.
Here is an interesting chart. See how little the production has changed over the decade - though the price has gone up 4 times