Oil Markets, How Market Manipulation affects Gas Prices
Who exactly are oil speculators? Speculators are parties that have a direct, or indirect, connection to the prices of crude oil that is being traded on the open market. They have investments tied into the cost of oil and are doing what any good business person should do; they are trying to get the best possible price on their product.
Oil Production in the World
The problem arises when these same individuals manipulate the information on their product to artificially inflate the value of the goods. This issue gets magnified when a verbal spat from an oil producing country starts rumors of a supply disruption, like Iran threatening access in the Strait of Hormuz. It also occurred when Libyan’s were rising up and revolting against Moammar Gaddafi even though Libya is a relatively small player in the world’s oil supply market.
So far in 2012 we have seen prices hitting highs that are usually saved for the summer driving season. Gas prices in February are averaging higher than usual and the trend is continuing to inch upwards. Here is California, where I live, we are already averaging higher than $4 a gallon and some places in Southern California (Los Angeles) have eclipsed $5 a gallon.
Not everyone understands why this spike in oil prices is different than the ones that have exploited our wallets in the past. The different factors are supposed to be directly connected to supply and demand here in the USA.
Current Gas Prices
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Oil Supply and Demand
We have always been told by the major oil companies that the prices are driven by supply and demand. Demand is up because China’s economy is booming or supply is down because refineries are offline; maybe some political turmoil in a Middle Eastern nation has caused disruptions in their output of oil? We have all heard the excuses; I mean reasons, why prices do what they do. I have always found it very confusing to see prices climb so aggressively but never seem to drop as aggressively.
What makes these recent spikes so mind boggling is that current US domestic oil production is at a high not seen in many years. The US is estimated to have passed two billion barrels of oil in 2011, a threshold not passed since 2003. Increased production is not the only key in prices, so is demand. The demand in the US is also down, almost 5% from this time last year. Putting these two factors together clearly points to a bigger problem than what we are being told.
When people feel like they are getting taken advantage of, and it sure seems like we are, finger pointing starts. Blame is being directed at the President, Congress, oil companies, people with big SUV’s etc. People are going to blame who they decide to blame but it is not always as easy as it seems.
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High Gas Prices
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Being a resident of California these manipulations sure remind me of what we went through back in 2000 and 2001. Energy companies played the market by creating false shortages by shutting down power plants and then selling the power at inflated prices because of the falsified shortages. Major companies like Enron were exposed as manipulators and conspirators in the energy shortage; we all remember what happened to them shortly after their exposure in the crisis.
Usually when our gas prices go up we hear increased rumblings about more domestic production to reduce our demand for foreign oil. This time we are in a different boat. With our production at a recent high our oil companies are actually selling oil to other countries. The numbers haven’t been released by the U.S. Energy Information Administration yet but the US could have exports of about one billion barrels of oil and fuels in 2011.
What it all comes down to is we need to get the speculators under control. If we continue to allow people to just say whatever they want to dramatically affect these prices we are going to get manipulated like puppets on a string. Our economy is still very fragile; I do not want to see what will happen to it if gas prices hit the highs that the experts are predicting.