The Driving Force behind Gas Prices

Okay. Gas prices soar and nobody can really give a rational explanation as to why. As far as I can tell, there is this oil company that owns its oil wells, and puts the oil on their tankers, delivers the oil to their refineries, and then their trucks deliver gasoline to their gas stations. But for some reason, they charge just as much for gas as everybody else. Their gasoline price has nothing to do with the price of oil sold on a commodity exchange.

But anyway, the 2010 BP Gulf oil spill showed, among other things, that the amount of oil is immense. The oil inventory numbers show, there is so much oil, the Banksters have actually bought supertankers for the express purpose of storing oil. And then there is the fact that empty oil wells in Oklahoma are being re-filled, crude oil pumped back into them, the owners of the wells collecting storage fees. Really, there is so much oil they are pumping it back into the ground just to store it. The oil producers shrug and say the price increases are caused by speculators.

Okay, here is the deal. ‘Paper oil’ is what speculators buy. Businesses have to project operating cost estimates in order to run their businesses profitably. For more volatile costs, such as oil prices, they hedge those costs with futures contracts to provide a firm number for how much those things will cost them. The most visible example is airlines, which purchase ‘paper’ jet fuel to smooth out or counter-balance the cost of actual jet fuel.

This practice has been made more accessible to smaller businesses, and even individuals, through trading tools on the internet, as well as Exchange Traded Funds that rise and fall in price along with oil. Or gasoline, or whatever they are designed to track. One such ETF is USO, (United States Oil) which goes up and down with crude oil prices. It is popular with farmers and ranchers who need something to stabilize their fuel costs.

Even the average Joe-Schmo consumer can purchase gas cards. Suppose Joe knows he needs to burn 400 gallons of gasoline next year to get back and forth to work but also knows he can’t be paying more than $3 a gallon or his kids starve. So he goes ahead and buys a gas card with 400 gallons on it when gas gets to $2.90 a gallon because he knows that’s the highest he can go. He’s good, until next year. Good luck Joe, I’m praying for you.

Good for Joe, good for the airlines, good for the farmers and ranchers, right? But really, what this does is it causes the price of paper oil to go up. And the financial institutions, the brokers and bankers, they collect their transaction fees. Also, they see all the data and track all the trends and they also jump in there and buy paper oil too, and make a boatload of money off the entire process.

This is just one piece of the puzzle. It’s not just oil, it is everything else. Food, housing, credit, consumer goods, gold, silver, cash in the bank, you name it. It’s all being subjected to the same basic principle. Good times, a big money party for everybody but the people who can’t play the game. They get squashed. The rich get richer. Everybody else, screw off, losers.