I don’t worry about the stock market, wind chill factors, Iran’s unclear nuclear program or the price of gas. All are hopelessly out of my control and despite nighty ranting on the news as to why the price of gas is so high or that we need to suddenly go off and get in a war with Iran, the biggest question I have is just how gullible are Americans? And no subject is more relevant to that question than the price of gas.
One of the greatest paradigms underlying our gullibility is that the price of gas is predicated on a Middle East country increasing or decreasing the supply of oil we make gas with. Apparently every administration since Carter has bought and sold that one to the American public. All at one time or another have opened up our reserves to provide a short time fix for high prices at the pump by flooding the market with oil and thus reducing the price of gas. Oh, if were that simple! I’m reminded of Jim Morrison of the Doors telling us in 1966 that you can not petition the Lord; you cannot still, with a straight face, believe that Middle East politics and turmoil are the driving force behind what you pay for the price of gas today either.
Gasoline is a commodity. Which means we buy and sell and trade it. In doing so you can also bet on what the price of it will be in the future. Understanding that, you begin to see that the price of gas has more to do with the Chicago commodities traders than Wall Street. Understanding that, you begin to grasp at the three card Monty game going on here.
The day gas came into play as a commodity, the price of it dislodged from any logic you may try to attach to why it costs what it does. It’s wintertime, gas usage is way down. Refineries are shut down for repairs because of such and demand has never been lower in the last thirty years than it is now. Supply is up right? Demand down! Price should be lower? Additionally, Libya is now pumping oil onto the market like never before to make up what they lost in sales during their brief civil war. New cars are getting better mileage than ever and promising to do even better. By all rules of supply and demand gas should be cheaper than it ever has been before! So, why isn’t it?
Simple. People are betting on the price of gas. And those same people are buying up gasoline and holding onto it or similarly flooding the market with it as their bets on the price of gas seem fit. There are no shortages. All artificial maneuvering and having nothing to do with whether or not Middle East tensions rise of fall around the straights of Hormuz!
There is another reason that prices are going up and don’t look to come down any time soon. This reason has less to do with gambling to make a buck than it does with investing. In the past, the money for exploration and developing new ideas was generally all at the gas companies expense. Now outside investors are footing the bill. And the only way they can justify the cost of doing such is if the price of a barrel of oil is over a hundred dollars plus. Some companies are now using fracking to open older wells up that have long sat dormant! The mining of Tar Sands in Canada additionally requires the price of oil to be high to make sure they are working for a profit.
In all cases; investors, oil companies, and explores all need higher prices to make money. So when the nightly news comes on and tells you it’s a Middle East problem or a shortage problem, just snicker, and put Jeopardy back on. The question Alex; “ Just how gullible are the American people!”