Like most everyone that drives a car, I'm angry at the the price of gasoline. I've been wondering what the real story is. I did some research. Here is a quick summary of what I've read:

The price of oil is not controlled by supply and demand. In fact, inventory has risen with costs. The price of oil is controlled by speculators who are willing to destroy national economies for short-term profits.

Though the Commodity Futures Trading Commission (CFTC) has been mandated by Congress to insure that oil prices reflect laws of supply and demand, gaping loopholes in the law have been exploited. Futures contracts in oil are increasingly traded in unregulated markets.

Once upon a time, the New York Mercantile Exchange (NYMEX) handled the trade in oil as a centralized operation, and was strictly regulated by the CFTC. However, the Commodity Futures Modernization Act of 2000 changed the rules to allow decentralized "over-the-counter" trades to be exempt from CFTC oversight. Apparently this was done at the behest of Enron and other energy crooks.

Then, in 2006, the Bush Administration allowed the London-based Intercontinental Exchange (ICE) to install computer terminals in the United States. The ICE is regulated solely by the United Kingdom's Financial Services Authority, and had been used to trade "Brent Crude", the price of which had been used as a benchmark for British oil. With new terminals in the United States, British traders began to trade futures contracts for West Texas Intermediate, which had been used a much more affordable benchmark in the United States.

With unregulated over-the-counter trades in oil futures, and unregulated ICE trades in oil futures, the price of oil skyrocketed. Large amounts of investment from banks, hedge funds, pension funds, etc., have been flowing into these unregulated markets, in an attempt to take advantage of the rising costs. Much of this has come from the flight of capital out of the collapsing real-estate bubble.

The resulting oil-price bubble has led to increased production of crude, as well as refinereries purchasing extra oil to profit from future price increases. Hence, while the actual supply of oil has reached a dramatic surplus, the consumer is getting cheated at the pump.

It is estimated that as much as 60% of the price of gasoline is pure speculation! The joke is, according to rumors, gas stations will soon begin to show pornos on their gas-pump displays. That way, we'll know we're not the only ones getting screwed.

__________________
"Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits." FDR-First Inaugural Address

I couldn't agree more. Oil is bubbling away like mad at the moment! The price of oil is not reacting to normal market forces in any meaningful way. It is purely speculative and will eventually cool rather quickly.

People go mad in herds but return to sanity one at a time. When somebody eventually wakes up and points out that the price of oil isn't based on anything other than an expectation that the price of oil will continue to rise and consequently bears no relation to the supply demand equation it'll start to fall.The only thing left to wonder if how high it could go before that happens and consequently how hard and fast that fall will be.

I could easily be wrong about this and I realise I'm in the minority since most economists think these prices (and higher) are the new status quo but at least I'm in good company; George Soros seems to think it's baloney as well.

A few things though.

OPEC (organization of petroleum exporting countries) controlled about 40% of the world oil; and virtually all of these oil firms in these countries are state-owned, hence they are not as quick as private firm to respond to the supply and demand but they do. Logically, why would these countries not expand their production to tap on the higher price while other firms do?

If the answer is that they restrict supply to enjoy higher prices, but wouldn't they be cheated out of profit if they restrict the supply and other firms which control about 60% of the supply expand production to enjoy higher price? Also there are always problem with not cheating within the cartel organization.

Many major oil firms beside from OPEC are state-owned, for example in Russia, Bolivia, Vietnam etc. These firms are subjected to many political interventions that a lot of their profits were siphoned to fund political projects instead of investing to drill new oil reserves. The problem is starkly visible in Russian oil industry where the efficiency of their oil firm is stagnant for years. And also equally important, the political unrest in Iraq retarded its industry growth, making it incapable of investing and expanding production. All these constrained on the rise of supply to correct the high price. On the other hand, many developing countries are embarking on tremendous economic growth, especially India and China. As a result, this raises the demand for oil more.

In brief, we have a slow response to market price by the OPEC, the supply constraint on state-owned oil firms and rapid raising demand on developing countries. All these factors contribute to higher oil price.

"And now, we have oil company executives testifying before Congress that oil should be around $50-60 a barrel."

That's a quote from Senator Feinstein's May 15 release.

http://feinstein.senate.gov/public/i...n_id=&Issue_id

This release describes the provisions included in a recently enacted farm bill that includes provisions to expand regulation of trading in oil futures contracts.

I'm not trying to be nasty, but we're way past excuses for the exploding price of oil like the one you recite.

__________________
"Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits." FDR-First Inaugural Address

Those are just a few things that contribute to increase the price of oil.

But if we are to put blame, then the average American who unnecessarily drives around with gas-guzzling SUVs, lives an excessive lifestyle and with little awareness of conservation are at fault just as much as the oil company since they drives up the demand, hence the price of oil

I suppose we can be more efficient by eliminating unnecessary driving. That may ease prices a bit. We can use more fuel-efficient vehicles too, but that doesn't mean we should turn a blind eye to speculators. Everyone with a gas guzzling SUV has to pay for their gas. Speculators steal. If you give them a chance, they'll steal all they can regardless of consumption rates. They manipulate the markets with abandon, and we ending up paying through the nose for their excessive lifestyles. We get nothing in return.

I say we eliminate theft, then we can focus on efficiency.

__________________
"Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits." FDR-First Inaugural Address

Just one thing...who is the speculator in this case?

Are they oil firm owners? or someone else?

This speculation theory sounds like a conspiracy theory to me. OPEC is the real power behind the price because it controls and monopolizes the supply. The only solution is to have an international organization free the market and reinstate competition, while Western nations take steps to increase their domestic supplies.

__________________

"You are just stuck in a box."

--Zaro

It's their oil and they can charge whatever they want. If the West doesn't like it, then they don't have to buy it. Simple enough.

A monopoly does not have the freedom to charge whatever they want. Fortunately, OPEC is not a complete monopoly, but it is close.

__________________

"You are just stuck in a box."

--Zaro