Wed, 24/May/2017 5:43

Gas Prices

I stopped tonight to fill my gas tank. I had not filled up for three weeks and failed to notice the up tick in gas prices over that time.

As the gas flowed into my tank, I made mention of the change in price to the gentleman across from me. He looked at the price and said he had not noticed. I stated my recollection and he then agreed that prices had gone up. Nearly under his breath, he said something like "those gas companies sure know how to rake us over for a profit." I topped off my tank, grabbed my receipt and left.

As I drove away, I thought about his comment. I remembered how the summer of last year gas prices went over $4 per gallon of gas and reached astronomically high prices per barrel. I could not think of one good reason that gas companies would want prices to go up. If prices go up, we buy less gas and conserve more. That doesn't do them any good. I then started to think about why the prices went up.

I realized that there could be two or three things competing against us and causing prices to go up.

First, the US dollar is weaker because the last president borrowed a load of money. The dollar continues to get even weaker because our current president has borrowed more than 1.4 trillion dollars this year alone. So a weak dollar means our money does not buy as much from other countries. Since we get a lot of our oil from other countries we are going to pay more. This, however, does not explain the sharp increase last summer. It does explain why we are paying more now than two, three or ten years ago, especially when you consider we import an ever increasing percentage of our oil.

Second, we and other countries are using more oil. India uses more oil now than it did last year and will continue to demand more oil. So does China, Mexico, Brazil, etc. That means there is more demand with about the same amount of production. This causes prices to go up. As an example, I wonder how many people recall what happened at Christmas time some years ago with Cabbage Patch dolls. There was a Huge demand and a short supply. They were selling for ridiculous sums and people were literally duking it out to get them. I bet Coleco made a huge windfall profit that year. Anyone mad about that?

As investors see the increasing demand for oil in the world they bet demand would continue to go up and they bought more oil. This caused prices to go up, way up. As the price went high enough investors sought to sell, cashing in on the stock market tune of "Buy low and sell high". This then caused prices to go down as there was more oil on the market.

Third, this comes from the conspiratorial side of me, OPEC, Venezuela, and other oil rich nations could deny us the oil we need. Because we do not have enough domestic production of oil, their choice could cause our prices to sky rocket even higher than we saw last summer. If such an embargo lasted long enough, you may not even be able to buy a gallon of gas for any price.

If oil companies made a hefty profit last summer or are making it now, it is not because they were controlling gas prices. Also, why should they not get to keep it and pay out nice dividends to retirement portfolios?





Please add a comment

Leave a Reply



(Your email will not be publicly displayed.)


Captcha Code

Click the image to see another captcha.


Comments

Leave a Reply



(Your email will not be publicly displayed.)


Captcha Code

Click the image to see another captcha.