Why High Gas Prices?

• ernest_t_bass

  

  ZWICK 4 PREZ;707446 wrote:Mines 08 but I think from 04-08 they had a 35.7 gallon offering.. which everyone I know who has an f150 in that time span has the 35.7.

  
  35.7 tank is recockulous! How much does it cost to fill up?
• justincredible

  

  ZWICK 4 PREZ;707446 wrote:Mines 08 but I think from 04-08 they had a 35.7 gallon offering.. which everyone I know who has an f150 in that time span has the 35.7.

  
  No clue. I just know when I bought my truck it was one of the last few on the lot and the only one that met my color, bed, door and engine requirements.
• Con_Alma

  ernest_t_bass;707451 wrote:35.7 tank is recockulous! How much does it cost to fill up?

  
  35.7 x $3.59 = $128.16 ...if he was running on fumes.
• IggyPride00

  

  Prior to the deregulation of the commodities market in 1998 you used to have to have a commercial interest (I.E be able to take delivery) to speculate in those markets.
  
  Once they got rid of that requirement and let the barn doors open commodities went from something people bought and used to asset vehicles for the major banks/hedge funds and it has been up, up and away for prices ever since.
  
  The price of oil would drop by half if you required those that wanted to speculate be forced to take delivery instead of just shifting paper around artificially raising prices. That, or significantly raise the margin requirement. It is far too cheap to speculate in commodities, which is why the heard pours money into them hand over fist.
  
  Then again ever meaningfully curtailing some of this would require standing up to the Goldman Sachs of the world by our politicians, and there is a better chance of Dick Cheney inviting Bin Laden over for dinner than there is of that happening any time soon.
• ZWICK 4 PREZ

  

  ernest_t_bass;707451 wrote:35.7 tank is recockulous! How much does it cost to fill up?

  
  
  I fill it up at/around half tank but it's usually b/w $65-70
• GoChiefs

  

  ZWICK 4 PREZ;707476 wrote:I fill it up at/around half tank but it's usually b/w $65-70

  
  Same here. But our van has a 32.38503 gallon tank instead of 37.5.
• sleeper

  

  It's Bush's fault.
• ernest_t_bass

  

  It's Obama's fault.
• bigkahuna

  I wish I still had my civic.
• gut

  IggyPride00;707463 wrote: The price of oil would drop by half if you required those that wanted to speculate be forced to take delivery instead of just shifting paper around artificially raising prices. .

  
  Patently untrue. Prices have gone up mainly because demand has gone up. Research across pretty much every asset class show when you allow shorting and also introduce more buyers/sellers the market becomes more efficient. I'm not 100% sure how commodities are functioning, but they did crack down (or at least try) on naked shorting with stocks.
  
  Speculation/hedgers are good for the market. Where it is potentially a problem is when contracts aren't tied to physicals and that introduces the potential for manipulation. I don't believe this happens - you can't just create a bunch futures and sell them artifically inflating supply and driving prices down (and then closing your position buying at a lower price you sold for). Doesn't matter if you take delivery or not. What happens when that contract expires is you have a right to X number of barrels at a specified price. You and the distributor can settle the difference between spot, and it's basically the same as you selling that contract to someone who can take delivery.
  
  Note in the table below the price drop in 1998-1999 - lower real price and inflation adjusted than where it had been mostly for years. A spike in 2000, but 2001/2002 were in line with most prior years. Then we began seeing increases in demand and prices followed accordingly. The market is clearly still driven by supply and demand, but futures introduce more stickiness and also serve to smooth supply/demand spikes a bit.
  http://www.inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp
• IggyPride00

  

  I don't believe this happens

  There are far more contracts for oil traded on a daily basis than there exist barrels of oil in this world.
  
  From an article this week on CNN money:
  
  http://finance.fortune.cnn.com/2011/03/07/speculators-double-down-on-oil/

  Schork notes that speculators now own nearly six times as many barrels of oil – 268,622 futures contracts representing nearly 269 million barrels – as can be stored at the WTI trading hub in Cushing, Okla. And since the CFTC numbers released Friday only go through last Tuesday, they likely underestimate the degree of speculative fervor building in the energy markets.

  Speculation in commodities is about as helpful for liquidity (in the way our system really operates, not how it is helpful theoretically) as High frequency trading. It does nothing more than provide Wallstreet an easy way to lever up on free money to game the market by just moving paper around with no respect to underlying fundamentals.
• gut

  There really is no such thing as free money, these guys take risk, if you want to get technical they receive a small transaction premium for managing that risk off-loaded to them by various producers, buyers, etc. As a producer or buyer, locking in a price has value for me and I will pay a small premium for someone else to assume that price risk. Speculators do in fact make markets more efficient, if you don't understand that there's no point in arguing.
  
  Again, you made a statement that speculation has been increasing the price of oil since deregulation in 1998 and you were flat wrong because the 2 years immediately after prices dropped significantly. Pretty much the end of this debate. And, what, during the peak of the recession when oil dropped to $50 a barrel or so, speculators were inflating and driving the price up then, too?
  
  Futures/options are a zero sum game and this is clearly something most people don't understand. You can invest in oil, get in an index. Say you buy-in at $100 a barrel, call if $4 a gallon or whatever But the problem is the price is still ultimately determined by the end user. I don't care how many speculators want to pay $100 a barrel, at the end of the day it's not profitable in the long-run if people will only pay $3 at the pump. And the fact is, if you are paying too much at $100 a barrel, other [smarter] speculators can and will take the opposite side of that contract to profit when oil falls to a fairer price. That's why these arguments are DOA - they ignore that there's another person on the opposite side of that contract losing their shirt as the price keeps going up.
  
  http://news.illinois.edu/news/10/0624commodityfutures.html
  The OECD, an international alliance of 31 nations that promotes the market economy, released the study as world leaders prepare for this weekend’s G20 summit in Toronto to address global economic problems.
  
  The study found no convincing evidence that speculators aggravated price increases that were already on the rise as drought cut into grain supplies and growing worldwide demand boosted oil demand, said Irwin, a professor of agricultural and consumer economics.
  
  Instead, he says the findings indicate that the influx of cash from index traders provided a deep new pool of liquidity that reduced volatility and held price increases in check.
• IggyPride00

  

  you made a statement that speculation has been increasing the price of oil since deregulation in 1998 and you were flat wrong because the 2 years immediately after prices dropped significantly.

  My timing was off actually. It was introduced in 1998, but the Commodity Futures Modernization Act (which deregulated the markets) was not passed into law since 2000.
  
  Look at the price of oil since 2000 and it has been a series of boom and bust, which throws the idea of speculation "smoothing" wild price fluctuations completely on its head.
  

  There really is no such thing as free money, these guys take risk

  When the Federal Reserve hands out money essentially interest free (or buys your junk paper at 100 cents on the dollar) and allows you to lever up at 30-1 all the while knowing you have a tax-payer backstop, that is free money my friend.
  
  The scenarios you are describing happen in a traditional capitalist system. That is not what currently constitutes the rigged game that is American finance in 2011.
• dlazz

  oberhaus;707414 wrote:only $700

  
  sounds cheap
• Automatik

  

  I don't buy gas.
• cbus4life

  Automatik;708260 wrote:I don't buy gas.

  
  Ditto.
• gut

  IggyPride00;708238 wrote: When the Federal Reserve hands out money essentially interest free (or buys your junk paper at 100 cents on the dollar) and allows you to lever up at 30-1 all the while knowing you have a tax-payer backstop, that is free money my friend.
  
  The scenarios you are describing happen in a traditional capitalist system. That is not what currently constitutes the rigged game that is American finance in 2011.

  
  You clearly don't understand the system and just quoting MSM ignorant spoutings. There is no such thing as a free lunch (this is actually not entirely true, though nothing anywhere near the scale you are referring to). You're "free" Wall Street bail out was neither free nor did the executives holding stock not take a bath when their share prices got slaughtered.
  
  The history of oil has been more volatile then you are implying. Again, you don't understand how futures contracts work - it is a zero sum game, that means for every guy that makes a buck, someone loses a buck. So explain to me how a speculative bubble forms in that circumstance. It is possible, but it's not sustainable. And I love the argument how when the price goes higher it's speculation, but when the price goes lower it's....not speculation, as in people can't speculate in both directions? Take a look at the 15 years or so of inflation adjusted prices before deregulation vs. after.
  http://www.inflationdata.com/inflation/images/charts/Oil/Inflation_Adj_Oil_Prices_Chart.jpg
• sonofsam

  

  Its all about speculation. The oil companies are getting around the rules of price gouging because we depend so much on foreign (middle-east) oil. We all know that the middle east countries are some of the world's richest and are always looking to make more money. With all the unrest in those countries, the only thing that IS running smoothly is the gouging of oil prices. Kinda like one of those "you put a dollar in my pocket and I'll give you back two dollars" deals. If the middle east says that there could be an oil shortage, the oil companies raise prices for a "potential problem". If/when that potential problem does not happen, Exxon and other major oil execs report HUGE profit since there wasnt a shortage as predicted. Kick some of that money back over to the middle east for scaring the hell outta everyone and its a win-win for both side while you pay crazy prices for gas. The only people that can stop this game is the American people... But it can't be just one person, it has to be the voice of everyone who is sick and tired of being robbed blind.
• IggyPride00

  

  you don't understand how futures contracts work - it is a zero sum game

  I have an MBA in finance, and I understand quite well.
  
  What you are missing is the huge fall when bubbles inflate is only a return to what should be the natural price. Everything above and beyond a certain point is speculative froth.
  
  Momentum encourages pushing prices higher. You should know that 99.9% of the investing world is controlled by computer algorithms, so when the bias becomes so heaped on the "long" side it encourages further pushing higher of prices by creating an artificial demand increase. That is what speculation does until it becomes unsustainable, and the drop begins to revert prices back to where they probably should have been in the first place.
  
  We will have to agree to disagree on the free lunch. When the major banks of the country can go to the Fed window and post worthless collateral in many cases and get money for .25% interest (in some cases lower) in which case they can turn around and plow it into speculative markets where you have to post margin requirements that are a joke that to me is a free lunch.
  
  What you are failing to see is that while it is a zero sum game, when there are 6 times the number of contracts as there are barrels of oil it creates an artificial scarcity that is going to have a natural bias towards higher prices. Eliminate the ability of those with no commercial interest (take delivery) to play in the game and it cuts down on the huge momentum swings we have experienced the past decade where banks jump in and out to ride the momentum one way or the other. It exacerbates the problem and creates a self fulfilling price prophecy one way or the other (which ever mood the hot money is in).
• Ironman92

  

  I buy gas every 4 days....I buy jeans every 10 months....I can also wear shorts, sweat pants, wind pants (when I'm feeling like 1993), khakis or even jorts.....my car only runs on gas though.
• Enforcer

  

  Times like these make Me love My Ranger!!
• fan_from_texas

  The fundamental problem is that supply isn't being increased much, while demand (particularly in emerging markets as we come out of the recession) is spiking. This will result in higher gas prices. It's not some evil cabal controlling this things; you can go bid into the NYMEX yourself if you want to hedge your risk. Oil is traded on a market just like stocks are--while there are inevitably bubbles and speculation that affect prices, the fundamental driver is appetite for oil that is increasing faster than supply growth.
  
  Gas prices will continue to go up in the long run, even if there are occasional stepbacks.
• LJ

  

  sonofsam;708292 wrote:Its all about speculation. The oil companies are getting around the rules of price gouging because we depend so much on foreign (middle-east) oil. We all know that the middle east countries are some of the world's richest and are always looking to make more money. With all the unrest in those countries, the only thing that IS running smoothly is the gouging of oil prices. Kinda like one of those "you put a dollar in my pocket and I'll give you back two dollars" deals. If the middle east says that there could be an oil shortage, the oil companies raise prices for a "potential problem". If/when that potential problem does not happen, Exxon and other major oil execs report HUGE profit since there wasnt a shortage as predicted. Kick some of that money back over to the middle east for scaring the hell outta everyone and its a win-win for both side while you pay crazy prices for gas. The only people that can stop this game is the American people... But it can't be just one person, it has to be the voice of everyone who is sick and tired of being robbed blind.

  
  Most large oil companies don't trade futures, they only buy and sell on spot.
• gut

  IggyPride00;708304 wrote:I have an MBA in finance, and I understand quite well.
  
  What you are missing is the huge fall when bubbles inflate is only a return to what should be the natural price. Everything above and beyond a certain point is speculative froth.
  
  Momentum encourages pushing prices higher. You should know that 99.9% of the investing world is controlled by computer algorithms, so when the bias becomes so heaped on the "long" side it encourages further pushing higher of prices by creating an artificial demand increase. That is what speculation does until it becomes unsustainable, and the drop begins to revert prices back to where they probably should have been in the first place.
  
  We will have to agree to disagree on the free lunch. When the major banks of the country can go to the Fed window and post worthless collateral in many cases and get money for .25% interest (in some cases lower) in which case they can turn around and plow it into speculative markets where you have to post margin requirements that are a joke that to me is a free lunch.
  
  What you are failing to see is that while it is a zero sum game, when there are 6 times the number of contracts as there are barrels of oil it creates an artificial scarcity that is going to have a natural bias towards higher prices. Eliminate the ability of those with no commercial interest (take delivery) to play in the game and it cuts down on the huge momentum swings we have experienced the past decade where banks jump in and out to ride the momentum one way or the other. It exacerbates the problem and creates a self fulfilling price prophecy one way or the other (which ever mood the hot money is in).

  
  Yeah, well a lot of MBA's at my school "didn't get it", and it was an excellent program. Again, futures/options are a zero sum game - you can't have a speculative bubble because there's a winner for every loser. The suckers are soon bankrupted out of the game and then with no one else to take the other side the speculative run ends. I can't explain it any more simply than that. It's not like traditional long positions in other assets where excess demand can create a bubble because the suckers don't continue to suffer losses while the price climbs because they've sold the position (more a case of foregone gains, but that doesn't bankrupt you). Excess demand can create speculative bubbles in stocks or housing and other assets because there's a fixed quantity of assets for sale - you can sell me a stock or house that you don't own or borrow - but futures contracts have no such issue other than you need someone to take the other side. Even stock options usually limit uncovered positions.
  
  And you're flat wrong about momentum and algorithm trading as well. Most algorithm trading is actually designed to move large orders while minimizing impact on price. lWe'll just write off "99.9%" as another grossly overstated and/or wrong fact you've introduced to this argument. It's also completely ignorant to characterize program trading as purely momentum driven, not even close just one of many factors (many of which are fundamentally based). High frequency trading trends toward zero net exposure - you're buying as much as you're selling - and most of these programs excel with volatility and not in long-run speculative bubbles.
  
  Now, please put that MBA to work and tell me how artificial contracts with no exchange of physicals matter to the spot price. Explain to me why you believe a oil company inot going to sell millions of barrels of oil because two traders had a contract at $100 a barrel and that's way above the supply/demand curve so the oil company just doesn't sell. Again, it's not going to be perfectly correlated but futures/options markets cannot long-run diverge significantly from the true price as determined by supply and demand. But one only need look at how supply and demand reports sends shockwaves through the futures market - the tail is not wagging the dog here.
  
  
  Yes, we will have to disagree on the "free lunch". First off, the money wasn't free as they have to pay it back and it came with a host of restrictions. Second, the driving factor behind that was a liquidity concern. You call it free money to speculate, economists call it providing liquidity to make markets function. Leverage and incentives is a different story and is really a separate issue from low interest rates (also, the Fed is not the only central bank offering "free" money. But that's a whole other discussion). Thinking those banks should have been allowed to go bankrupt is just beyond idiotic. Junk bonds nearly destroyed the S&L market in the 80's and Michael Milken went to jail for it, and this is now a very viable asset class that creates real value. And, again, ask the people at Bears Stearns and Lehman about this "free" money you speak of because I'm sure they could have used some.
• ernest_t_bass

  

  Here is something that I do not understand, and can someone please answer for me...
  
  Why is it that towns that are 15 miles apart can have 20¢ differentiation in gas prices? Why is it $3.59 in my town, then I travel to another town, in the same county, and it is $3.39? Better yet, in some bigger towns, you'll see cheaper prices at the truck stops along the highway, but IN town, you'll see much higher prices. What up with that?