Gas Prices for Dummies

[Y_K]

This persistent 'oil speculators' idiocy is disenchanting. I can not stand the fact that most folks in mature countries are that ignorant, but it is a fact..
Two billion people in the emerging world are joining the global economy and competing toe-to-toe for scarce resources with the West. Their rising demand - not our declining demand - will set oil prices. India alone is spending over a trillion dollars for infrastructure. China is adding over 30 million new cars every year - that is a rough estimate, as there are many cars entering the country via less legal channels. This Great Recession we live in simply briefly disguised the supply crunch for a while, and the crunch is coming back with the vengeance.
We should not be complacent, and we should not be defeatist. Engineers and scientists are forever at work.
I am enjoying my huge Lincolns and Land Cruisers while I can..

 

[rshaw125]

These threads don't last long. it's all politics. not allowed. it is an election year. Lots of finger pointing. Washington blames Wall Street.

After all the finger pointing and grand standing one fact remains: Oil /gas has only gone up in dollar terms. using other valuation methods such as gold it has declined in price. Only using the dollar has it increased in price.Only.

 

[Shannow]

$Oz is higher than it's ever been compared to the U.S., and our fuel prices are higher than they've ever been.

Someone is fiddling something somewhere.

 

[John_K]

Originally Posted By: Y_K
This persistent 'oil speculators' idiocy is disenchanting. I can not stand the fact that most folks in mature countries are that ignorant, but it is a fact..
Two billion people in the emerging world are joining the global economy and competing toe-to-toe for scarce resources with the West. Their rising demand - not our declining demand - will set oil prices. India alone is spending over a trillion dollars for infrastructure. China is adding over 30 million new cars every year - that is a rough estimate, as there are many cars entering the country via less legal channels. This Great Recession we live in simply briefly disguised the supply crunch for a while, and the crunch is coming back with the vengeance.
We should not be complacent, and we should not be defeatist. Engineers and scientists are forever at work.
I am enjoying my huge Lincolns and Land Cruisers while I can..


So you're saying Obama didn't do it?

John

 

[javacontour]

And neither did any other president or political party.

Speaking as human nature, not politically, both parties will blame the other. People will believe "their" party and not believe the other, even when both are saying and doing the very same things.

 

[John_K]

Originally Posted By: javacontour
And neither did any other president or political party.

Speaking as human nature, not politically, both parties will blame the other. People will believe "their" party and not believe the other, even when both are saying and doing the very same things.


Very well said!

John

 

[addyguy]

I don't think it's that simple or guaranteed.

Yeah, there are a lot of people in the develping world who want to drive, but the TRUTH is that there isn't room for them TO drive.

There are 3 billion people in India and China. Let's assume 2 billion are of the age and ability to drive a car....there simply aren't enough roads built, or room to build raods for all those potential drivers.

Simple over-capacity will ALWAYS keep down the number of drivers there are in the developing world. We actually don't have much to worry about....

 

[friendly_jacek]

What you said is true, but it's also true that speculation is rampant. If there was no speculation, how do explain the quick rise in oil prices up to $130 in 2008 and the even quicker slide to $30 in few short months.

World consumption didn't go down 75%+ in 2008, Duh!

Its interesting how when silver speculation picks up, banks tighten margin rates as they are mostly short silver. Somehow the same doesn't happen when oil speculation picks up as banks are net long oil. Eventually the speculators will lose big time but who knows when that happens.

 

[CivicFan]

Addyguy, you obviously haven't seen the roads in China. They have done a pretty good job building infrastructure.

Here is a regular road in Beijing.

But here is traffic jam that lasted 11 days in Inner Mongolia.

 

[fxrider]

Wow & i thought LA was Bad..

 

[Burt]

Originally Posted By: Y_K
This persistent 'oil speculators' idiocy is disenchanting. I can not stand the fact that most folks in mature countries are that ignorant, but it is a fact..
Two billion people in the emerging world are joining the global economy and competing toe-to-toe for scarce resources with the West. Their rising demand - not our declining demand - will set oil prices. India alone is spending over a trillion dollars for infrastructure. China is adding over 30 million new cars every year - that is a rough estimate, as there are many cars entering the country via less legal channels. This Great Recession we live in simply briefly disguised the supply crunch for a while, and the crunch is coming back with the vengeance.
We should not be complacent, and we should not be defeatist. Engineers and scientists are forever at work.
I am enjoying my huge Lincolns and Land Cruisers while I can..


Well said. People have to get off the notion that cheap fuel is a birthright and high prices must be a conspiracy. We need to have an intelligent discourse on what can practically be done to maintain our standard of living without searching for the elusive boogey man and shooting ourselves in the foot.

 

[rjacket]

Apparently, it's the speculation that has caused the price of oil, and hence gas, to be so high even though actual physical demand and supply would not historically warrant such a price.

Speculation is part of the free market. In fact, it, like any other financial market, is the free market in it's most perfect sense. If someone like Milton Friedman was around right now, he would argue strongly against any intervention in today's oil market that went beyond ensuring that there wasn't collusion or manipulation going on.

So why are prices high? They are high because speculators expect future prices to rise. Why do they predict future prices to rise? Because they expect demand to increase and/or supply to decrease.

That's what speculators do (in theory and also when they are not manipulating the market). They make the market more efficient by helping determine the true value of something. As a practical example, if oil was going to be $130 in 2 years time, why wouldn't any investor buy it at $100, wait 2 years and sell it? That's 15% return a year. If oil was an infinte resource and people believed supply would always come on line to meet increasing demand, then we'd have lower prices. But the market recognises that demand will increase and / or supply will decrease and is factoring that in. It ends up conserving the resource and forces us to start looking at alternatives. It's the practical side of the free market at work.

It's ironic that in this case, it is the environmentalists who will be the biggest supporters of the free market!

 

[eljefino]

Originally Posted By: friendly_jacek
What you said is true, but it's also true that speculation is rampant. If there was no speculation, how do explain the quick rise in oil prices up to $130 in 2008 and the even quicker slide to $30 in few short months.

World consumption didn't go down 75%+ in 2008, Duh!


The supply/demand curve isn't linear like that. Probably a (surprise) 5% increase in demand would be a 50% increase in price. In theory, speculators figure this out for the mid term and help oil companies decide if they want to develop new resources. (Many are wondering why the 5% drop in domestic consumption isn't causing a price drop though.)

IMO the $30 crash was an oscillation exaggerated by speculators jumping out, as demand alone would have made oil "want to be" $60-70 at that moment.

 

[grampi]

Originally Posted By: rjacket
Apparently, it's the speculation that has caused the price of oil, and hence gas, to be so high even though actual physical demand and supply would not historically warrant such a price.

Speculation is part of the free market. In fact, it, like any other financial market, is the free market in it's most perfect sense. If someone like Milton Friedman was around right now, he would argue strongly against any intervention in today's oil market that went beyond ensuring that there wasn't collusion or manipulation going on.

So why are prices high? They are high because speculators expect future prices to rise. Why do they predict future prices to rise? Because they expect demand to increase and/or supply to decrease.

That's what speculators do (in theory and also when they are not manipulating the market). They make the market more efficient by helping determine the true value of something. As a practical example, if oil was going to be $130 in 2 years time, why wouldn't any investor buy it at $100, wait 2 years and sell it? That's 15% return a year. If oil was an infinte resource and people believed supply would always come on line to meet increasing demand, then we'd have lower prices. But the market recognises that demand will increase and / or supply will decrease and is factoring that in. It ends up conserving the resource and forces us to start looking at alternatives. It's the practical side of the free market at work.

It's ironic that in this case, it is the environmentalists who will be the biggest supporters of the free market!


Speculation is part of the free market, but crude oil products are not. They operate in a cartel. Also, there shouldn't be any prodding needed to spawn development of alternatives. Just the simple fact that fossil fuels are a finite resource should be incentive enough...