Now that crude oil is easing on global tensions (war in Georgia – not that Georgia, the other one near Russia) and sabre rattling increases around Iran. (Yes, I know this is usually the reason crude oil prices go up) Is the gas crisis over? While past performance is no guarantee of future performance, a look back in time is often helpful.
Attribution: Gas Buddy
Over the past six years, one can see that prices have steadily increased over time, check out the chart below…
Attribution: Gas Buddy
The trend line makes it even more obvious, the price of gasoline is increasing on a pretty steep slope and something fundamental must change in order for the slope of price increases to weaken. Gas goes up, gas goes down, but the price, inexorably marches up as an overall trend. It’s convenient timing that the price is moderating before an election in the US, the largest consumer of oil even though the world supply is arguably at more risk this month than it was last month (we do have a new shooting war that has shut down a pipeline after all.)
Ah, but the market will sort this out, right? Well, it’s become increasingly clear to anyone paying attention that the market is being manipulated by outside forces, starting with the OPEC cartel. Take a look at the same gas price chart with the price of crude oil per barrel added below.
Attribution: Gas Buddy
When we add the trend line here, it’s even steeper. And the fiction of market dynamics is even more exposed.
Attribution: Gas Buddy
The question we should all be asking is not why gas is so expensive, but why is gas so cheap? And why is the price coming down when macro events should dictate further price increases? US demand may be down (I’m dubious about this since I see no appreciable difference on the roads) – but global demand remains strong. There are no large discoveries of “cheap to extract” oil that have been made, there is no appreciable increase in net output of crude oil or refined products, why the change? And why is there such a large divergence between the price of the raw material and the finished product?
I tend to be a fan of market economies and certainly have benefited from them over the course of my life. But I’m not a fan of manipulated markets and that’s what we’re seeing in this instance. I think the answer for why the markets are being manipulated is to lull the largest dependent market into a sense of false security so the fleecing can go on longer term – that means providing benefit to politicians who have been friendly to oil and they cannot succeed in times of bad economics (see Bush I.) Let’s look at the opposite situation, a competent Energy Policy aimed toward energy independence backed by a populace in pain is bad for the oil business. That’s why gasoline and crude oil prices drop while Georgia burns…
Remember this when you go to the polls sports fans….
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