I drive a little car. It has a little gas tank. When I bought the car (about four years ago), I remember paying around $25 to fill the gas tank. The other day I paid over $60.
When I get e-mails or phone calls from readers, it’s the number one thing they want to talk about. No surprise there. The consumption of petroleum products is fundamental to almost every work site. It’s hard to get through a workday without consuming a lot of gas—gas that is costing you almost three times what it was just a few years ago. What’s going on?
Is it the OPEC cartel and the trouble in the Middle East? Not really, though it would be nice for the government of Iraq to say a great big “thank you” by cutting us a deal on their oil.
Is it the greedy oil companies? Not really, though it would be nice if they could make a little less record profit and lower the price a bit.
Is it the Bush administration and their cronies in the oil business? Not really. One of the best-kept secrets in this country is how little influence the president has over the economy (unless, of course, he decides to start sending out checks).
OPEC does not set the price of a barrel of oil. Nor does Exxon. What most people miss when talking about the explosive rise in oil prices (and what the media, for some unfathomable reason, doesn’t seem to think is important enough to inform us about) is the fact that oil is a commodity. It is traded on the exchanges of the world like pork bellies and concentrated orange juice. That is where the blame for high oil prices should be placed, right at the foot of Wall Street.
Oil is a product that investors speculate on. They don’t do it to park their money for a while; they are looking for returns—profits—on that investment. How do they profit? When the price of the oil they bought yesterday is higher today, allowing them to sell for a profit, they make money. As long as they keep bidding up the commodity, it’s drinks all around at the local bar after the closing bell.
So, what’s a free market guy like yours truly supposed to do when that free market goes haywire? I admit, my knowledge of commodities trading ends right about there, but I would start by looking for the government interference in the market. How free is a free market when there is a book of government regulations and taxation as thick as your thigh attached to that market? How do those regulations affect the production (or lack of production) of the commodity? If we had allowed oil companies to build refineries instead of regulating them to a point where there hasn’t been a new refining facility built in this country in half a lifetime, we might be seeing the laws of supply and demand swing a little bit back in favor of the supply side.
I don’t have the answers to the unprecedented and continuing gas price escalation in this country, but I do know that we are not being given the whole story.