Wednesday, May 14th, 2008

High gas prices are here to stay


Gas prices are creeping ever upward, a trend that makes me happy that I don’t own a vehicle. But according to Wired‘s car blog, Autopia, the rising price of fuel isn’t a temporary phenomenon. Demand from China and India, a tightening supply, and a slowing American economy are all to blame. And then there are speculators who will likely keep prices high, even if other factors ease off. Bottom line? Get a bicycle.

Warren Frey is a journalist, freelance writer, podcaster, video producer, and all-around media consultant currently based in Vancouver, Canada. His written work has appeared in such publications as Metro Vancouver, the Westender, Mac | Life and the Japan Times.

One Response to “ High gas prices are here to stay ”

Tyler Green says:

People across North America will be asking their elected representatives, and candidates for office ” Who will introduce a bill to remove oil from commodity trading to stop the investor speculation that has rased the prices so high?”

” If you won’t, maybe your political opponent will care enough to introduce such legislation”.

“… somewhere around $60 is the true price for a barrel of this light sweet crude ..”

High price of oil and gasoline, and the resulting impacts to the economy are the headline news every day now. The money that individuals used to spend on a variety of different products and services is now diverted to pay for gasoline and diesel fuel, causing businesses to close, employees to be laid off, and prices of food to rise.

Although a number of explanations for the rise in the price of a barrel of oil are offered, the reason is easy to understand. CNN aired ” The Trouble with Oil” last Nov, 2007 with anchor Tony Harris. The following is from CNNs’ transciptions ( URL below):

HARRIS: Cut through it all for us at home, and for me who’re trying to figure it out. Why is the price for a barrel of oil so high right now?

VELSHI: Well, you know, and this is very tough for folks to understand, because it doesn’t make sense. It’s a supply and demand thing. You think that the more people who want it, and the less there is of it, that’s where the price goes up. But that’s sort of stopped at about 60 bucks a barrel. This has become much more about trading and speculation.

HARRIS: Ali, that is crazy. So you’re telling me that somewhere around $60 is the true price for a barrel of this light sweet crude that we’re talking about?

VELSHI: In so much as there’s a true price, right, because you want to buy one, you’re going to have to pay what those traders want you to pay.


CHERNOFF: Is there a shortage of gas? Not at all. It’s crude oil rapid climb to nearly $100 a barrel, says energy experts that’s driving the price of gasoline, as well as home heating oil. Yet there’s no shortage of crude oil, either, say fuel distributors like David Shouldwachter.

DAVID SHOULWACHTER, FUEL DISTRIBUTIOR: We have more than enough oil.

CHERNOFF: In fact the Department of Energy reports oil supplies are above average for this time of year. And demand, it actually declined in the past couple of weeks. Energy analysts say crude is rising because of fear there might be a disruption in the flow of imported oil. The last time there was a significant cut in foreign supply was when the U.S. invaded Iraq. Back then, the price of oil hit $35 a barrel. A fraction of today’s price.

Andrew Lebow has been an energy trader for nearly three decades. Never, he says, have there been so many investors bidding up oil.

Is there any way that the supply and demand situation justifies oil at this level?

ANDREW LEBOW, SR. VICE PRES., MF GLOBAL: No, I don’t think so. And I think we’ve seen a tremendous inflow of speculative money coming in to, not only the oil markets, but commodities in general.

CHERNOFF: Investors are putting hundreds of millions of dollars into the energy markets. SAM GREER, EXEC. VICE PRES., MERCANTILE EXCHANGE: Well now, it’s as acceptable to invest in let’s say crude oil or gasoline as it is to invest in IBM?

CHERNOFF: And many traders are embracing the old Wall Street rule that trend is your friend. The trend for oil has been up and it’s been paying handsome dividends.

FADEL GHEIT, ENERGY ANALYST: The largest financial institution controlled oil price will dictate the direction of oil price much more than any oil country.

CHERNOFF: Of course, the trend could quickly change, leading traders to bail out of oil. But for now, a major reason we’re paying more at the pump is that big investors have been striking black gold in the oil trade. Allan Chernoff, CNN, New York.

HARRIS: And the price of oil is within striking distance of $100 a barrel. And guess what? There’s no help from Washington in sight.”

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