05
Aug
15

Gasoline Prices – Are they Real?

U.S. Stocks Lower as Oil Prices Drop – WSJ.

The Price of Oil and Gasoline

The big news is that the price of oil is the lowest it has been in years, down to $45.17 of crude oil per barrel. Have you ever wondered why the price of gasoline goes up and down? There is a common misconception that it is all due to “supply and demand”. Supply and demand sometimes does have an effect on the price of gasoline but not in the way that you might imagine. The cost of gasoline has more to do with speculation on Wall Street than it does with how much oil is produced or consumed.

gas signs

How To Think About Why Gasoline Prices Change

In order to understand how Gasoline prices work, think of it this way: You are the consumer. (And you want to purchase gasoline). But, in this similar scenario, you want to buy concert tickets for your favorite artist, let us say, Taylor Swift. And, the offered price from Ticketmaster is $80. However, you are unable to buy these tickets because Wall Street Speculators, similar to Ticket Scalpers, have bought up all of the tickets. And, if this particular time and venue is very popular, the price of the tickets will go up exponentially. However, if there are many concerts near the same venue  and many dates, the scalpers will sell it at its regular price. This is the essence of buying gasoline. See, it is supply and demand, but more having to do with the scalpers (the speculators of Wall Street) than with the actual supply and demand of gasoline. In fact, you have been paying a lot more for gasoline for many years, for no added value and gave it all to a useless middle man (Wall Street speculators). That is where that extra money goes when the price of gas goes higher.

Today’s Price of Crude Oil – $45.17 Per Barrel

Down from a high of $115  of Crude Oil per barrel in June 2014 to the present $45.17 per barrel this week,  August 3, 2015, it makes you wonder how low the price of oil will go. My prediction is $43 per barrel. This is the real value. Remember: everything above $43 is simply profits for the speculators. Link: U.S. Stocks Lower as Oil Prices Drop – Wall Street Journal 8/3/15.

How Does Wall Street Try To Explain the Decrease in Oil Prices

Wall Street is adamant in trying to maintain the myth of Supply and Demand (because everybody is effected by gasoline, just like water and electricity, and no one wants to pay more because of gambling on Wall Street), And so Wall Street makes a weak argument that demand is down, like the Chinese economy is slowing down (it is not, the Chinese GDP grew by a whopping 8% and they consume more oil every year), that the US is not consuming as much oil (this is also false), and that there is an actual “glut” due to overproduction of oil from all countries.

What about there being an actual oil glut? If that were true then all of our reserve tanks would be full, but they are not nearly even close to maximum. If we were truly in an oil glut situation, why would we need to prove more energy projects such as the Keystone XL pipeline? In truth, there is no oil glut either.

Charting Oil Prices

Below is a chart on the price of oil since 1987. Once upon a time, the United States cared about the regular citizen and created the Commodities Futures Trading Commission (CFTC). The CFTC was established by Congress in 1974 specifically to prevent speculation from artificially inflating the price of commodities. However, with Congress, madly in love with deregulation, Free Trade Deals and Wall Street, and thanks to lobbying from Enron (remember them?), in 2000, Congress relaxed the rules of the CFTC and allowed speculation into the price of oil, which has lead to skyrocketing gasoline prices until recently.

oil prices

So why perpetrate this myth of supply and demand regarding oil prices? The answer: the stock market needs to preserve the image, that not just oil but all stocks are based on supply and demand. Wall Street is afraid that if the public knew the truth about the stock market that there would be a loss of faith in that institution which may compromise its status of stability. If you look at the chart – it is speculation that has driven up the price of gas since 2001 (right after they relaxed the rules on speculation on oil). The real cost of gas probably is $43 per barrel.

For more information about the CFTC and speculation see the below reference (a very short and readable article). Also within this link is a 2 minute video called “Who Decides The Price at the Pump?” by John Hofmeister, CEO of Shell Oil, see:  How Does Oil Speculation Raise Gas Prices by howstuffworks

Conclusion

Price of oil and the price of stocks usually have nothing to do with traditional supply and demand. It is based on speculation by high-frequency traders as well as Wall Street banks that have maximized their ability to see trends and make trades before anybody else by using the fastest technology available.

Don’t believe the reasons when the media tries to explain the ups and downs of stocks or gasoline. The Stock Market is shaped by millionaires and billionaires moving around millions of stocks around the board for no apparent reason, except they always make a good profit. With the drop of gas prices, profits have been down for all of the oil companies. For example, Chevron made a measly $571 million in the second Quarter of 2015 and because of their disappointing earnings, Chevron plans to cut more than 1500 American jobs, 950 in Houston, TX and 500 in San Ramon, CA.

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