Tuesday, December 9, 2008

Gas: What's The Dealie-Yo?


That's what I paid for a gallon of gasoline for about 4 months this year (not to mention the $4.99 it hit during the panic-made, absurdly timed "Nashville Gas Shortage").


That's what it is today. So, this might beg the question of oil and gas companies: WTF?

Well, it's actually really simple. It's not just supply and demand, but supply, demand, and how it is manipulated by oil companies with the help of the "petroleum state" cartels (i.e- Saudi Arabia, Syria, etc).

First, let's dispel this rumor: "Barack Obama has brought down the prices!"

Well, no, not so much. There is nothing at all endowing the commander-in-chief with an influence over oil prices or markets whatsoever in article II of the U.S. Constitution....The President-Elect has even less power. So, "The Audacity of Hope" does not lower oil prices by decree or influence from his transition headquarters in Chicago. The most recent, and wildly extreme fluctuation in gas prices has more to do with the checks and balances of a free market economy in a global market place.

The petro states created OPEC 43 years ago so they could manipulate and control the price of oil throughout the world, but their behavior and lack of scruples surrounding their commodity have created a monster that is likened most closely to narcotic cartels. No better was that exemplified than this past year.

Starting in late January of 2008, the opportunity existed for OPEC nations to make record and ridiculously gionormous profits when the demand (consumption and future anticipated consumption) for oil was high, coupled with reduced refinery capacities world-wide (for various reasons)...all they needed to do was slow their harvesting or production of oil to bring about a real dwindling supply against booming demand, spiking the price of oil through the roof.

In April this year oil was $120 a barrel. By May: A record $147 per barrel. This was the lit match to the fuse of the global markets already faltering underneath bad lending or banking principles. The dramatic increase in oil prices exploded prices on everything (food, clothes, even computers) as transportation costs soared, which meant companies had millions of dollars less to pay medical coverage or even salaries of their employees. Stocks dwindled, lay-offs and wage freezes ensued, and BANG! Too many bubbles bursting at once...recession.

However, when the ripple effect reaches so far, so fast the response to the crisis is certain to decrease the demand for the guilty commodity (oil in this case) drastically.

Whole nations rolled out energy independence plans, while huge companies have committed their resources to inventing and innovating their way to alternative energy resources, power sources, non-oil vehicles, and all things that make crude oil obsolete. Just like that (snap) the demand for oil fell...not just in a psychological way, but in a very tangible way. More people car pool, more water and wind-harnessing equipment has been purchased by energy companies, automakers rolled out higher fuel efficiency vehicles, and even mass transit vehicles (trucks, trains) have non-oil engines coming available in the next few years.

All this makes for a world less dependent on oil. $43 a barrel is what oil is trading at this morning, and oil futures predict a steady bottom to form around $40 a barrel (even as OPEC slashes production).

The lowering of demand could also be explained this simply "shrinking economies equal shrinking demand on the lifeblood that runs them." It may not be just that simple this time.

Have a great Tuesday!

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