How true your words are. But we don't have an oil shortage. We have "A possible situation that may impact the ability to obtain sufficient amounts of Middle East crude oil to maintain profits at current levels." This was told to me by an oil executive (retired), who was head of Research and Exploration for ARCO prior to the BP buyout. Prior to that position he was head of ARCO-Alaska, which happens to control the entire Prudhoe Bay oil field. He says there is plenty of oil there, but Middle East crude is more profitable.
It's all about cashflow, not oilflow. Note also that at the accepted conversion rate of 3 barrels of crude to 2 barrels of gasoline (a barrel being 42 gallons), a $2.00/barrel increase in the cost of crude works out to a $.07/gal increase in the cost of gasoline. But I bet you'll see the pump price going up at least $.12/gal.

Since I am familair with the oil industry let me venture my view:

Oil companies does not have "gasoline coming out of their ears"....it is just not true.  The USA is always short gasoline due to the limited number of refineries...they can only produce X amount.

I will concede that oil companies have no incentive to build addional refineries.

Legaslatation/reulation aimed at polution etc also helps them as it provides a convenient excuse for not building more...but they really don't want to build anymore.   

Addional legislation (no mtbe etc.) also keeps keep prices high becuause it hard to produce the "new" versions of oil and oil companies like this too and exploits these changes.

Concerning oil:

There is no "shortage of oi" but there is a shortage of "oil production".

People expect supply/demand to take care of it but here is the catch:

Oil production capacity is being held by the balls by middle eastern countries - fact of life...they have the vast majority of the oil and they aren't going to produce more for obvious reasons (economical & political).

OIL COMPANIES DO NOT CARE ABOUT THE PRICE OF OIL - their profits are based on the price of gasoline vs oil, therefore have no part to play in this oil production situation.

NOw you say, supply & demand dictates that if oil price rises other production will come on line (like Alaska etc)....

True

But

Legaslation in America makes it hard to drill for oil (not saying environmental protection is bad - just pointing to a fact of life).

Oil companies in the US cannot drill where the oil is...Alaska, Off the coast of california etc)....the US got them into this themselves and the Middle East knows it!

Well, eventuallly, Americans will get fed up and lift these restrictions...as is currently happening.

So you say, surely them we will win this little game, but the US can't becuase:

As soon as we get all these restriction lifted and build additional production capacity in the US(which will take years), the middle east will just flood the market with oil again and makes all the new production a loss making proposition for anyone invested in it.....all the environmentalist will cry how they were right.....production will shut down in these places becuase it' s not profitable.


...then the game begins all over again.