Crude Oil Hits New Record

Prices for crude oil hit a new all time high trading at over $137 per barrel. Soon, the front end crude price will begin to translate to back end gasoline prices. Hopefully gas prices will get at least to $7.50 per gallon. Yes, you read that right. $10 would be even better. Higher prices at the pump translate to several things.

DEMAND DESTRUCTION

Demand destruction simply means that the more a thing costs results in the less demand for it. The amount of gas we use will decline as the price gets higher. This can occur in many ways. Some obvious examples are more carpooling, public transportation, smaller cars, alternatively powered cars, as well as many other forms of demand destruction. We are a nation of procrastinators. Until maximum pain is upon us, we do not take action. $10 a gallon gas will cause sufficient pain to induce maximum demand destruction. This is the most potent weapon to fight high prices on a long term basis. Once demand goes down the laws of economics dictate that so will the price. Changed behaviors persist and the increased supply from built out capacity does too. All of the public service announcements, op ed pieces or speeches in the world will not motivate America to actually reduce demand by 30%. However, $10 per gallon price at the pump would do the trick. It is the only thing that will motivate the country to do what is necessary.

ALTERNATE SOURCES

When gas prices are low there is no great motivation to create alternatively powered cars. People are not eager to spend additional thousands for a car which gets better mileage when prices are $2 a gallon. However, should they be $5 or higher that mentality quickly changes. More demand for alternative cars means more incentive to improve their technology. Soon it becomes cost effective to migrate away from gas once and for all. So long as gas prices remain low that will never happen. A period of very high gas prices will translate to us driving hydrogen fuel cell or electric cars within the next 10 years. This transition would not only help us economically and in foreign affairs, but it will also help the environment. High gas prices are a "green" friendly occurrence.