Thursday, April 28, 2011

Rising Gas Prices

"President Obama isn't doing enough to lower gas prices."

The truth of the matter is that gas prices aren't high enough for Americans to be willing to take any real steps to change them.  Let's face it, if gas prices were a real problem, we would outlaw gasoline-powered racing.  We'd heavily tax the most inefficient vehicles, or make them illegal.  We would institute higher gas milage standards for new vehicles, or we would take serious steps to replace gasoline-powered cars entirely with electric ones.

NO ONE has mentioned doing anything like this.  In fact, if the President were to take drastic steps like the ones outlined, he'd be attacked and accused of interfering with the free market.

Interestingly, a look at our free market reveals that there are factors at work herein, that are anything but free.  Oil production is up, while actual gas usage is down.  So, we have high supplies and low demand, yet prices are still climbing.  Why?

The answer in a word is "speculators"- those who purchase gas not to consume, but to hold, in hopes that prices will continue to go up.  Such speculation is fear driven, and ignores actual market place consumption.  Unrest in the middle east isn't a new thing, and the current turmoil hasn't represented any serious interruption in crude oil supplies, and refineries are operating at around 80% capacity.  So, there is a sincere disconnect between supplies, demand, and pump prices.

The really sad thing is that unless gas prices get much much higher, there will be no political will to take serious steps to fix this problem.  The only real solution to high gas prices is much higher gas prices than the $4.25 per gallon we saw under President Bush.  In order for America to take rising gas prices seriously, we are going to need to see $6 per gallon, or possibly more.

Until marketplace consumption and real demand take the place of speculative pricing, we will continue to see fuel prices completely disconnected from actual usage.

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