@ Whitey: there was a lot of good, solid information in Mustangman’s post. At the very least, it was “on topic” W/R/T oil prices, and the extent which the oil production market is truly free, or an oligopoly. Why you chose to “shoot the messenger” is unfathomable.
Prices will always be where the demand curve and supply curve intersect. Suppose a $1/gallon tax is enacted. This would not effect the demand curve: at $3/gallon, consumers would still want the same amount of gasoline they always have…where the money goes AFTER they pay it is irrelevant to the consumer.
What would change is the supply curve. At any price, the amount of gasoline supplied to the market decreases (there’s less money to be made), which corresponds to a leftward shift in the supply curve.
The equilibrium price–the price at which supply and demand curves intersect–would move leftward and upward: less product sold, at a higher price. The extent to which the change is one of increased cost, versus reduced numbers sold, is termed ELASTICITY OF DEMAND. The more elastic demand is, the more change is one of less sold; the less elastic, the predominant effect is higher price, with little reduction in amount sold.
Long-run demand tends to be more elastic than short run: SR, you’re sorta stuck, but LR, you can do things like sell the gas hog for a Prius, move closer to work, etc.
IT SHOULD BE NOTED THAT CALIFORNIA IS ABOUT TO PUT DEMAND ELASTICITY TO THE TEST! Gov. Schwarzenegger signed into law a measure that would tax gasoline–the exact amount to be determined–until demand for it stabilizes at 1990 levels. That is, they’d tax gas, and keep increasing taxes, until demand drops to where they want it to be…