Wednesday, July 30, 2008

GAS PAINS

If you're like me, you've gotten into the habit of looking at the price of gasoline as you travel through town. About a week ago or so, the price of a gallon of regular gasoline was about $4.50; then it started to drop, at least 5 cents per day, so now the price is just under $4.00 per gallon. What's going on?

Let's ask the experts.

From an article in the newspaper business section, under the headline "Falling prices reduce anxiety over energy costs" the byNew York Times News Service:
- "oil has fallen more than $23 a barrel, or 16 percent, since peaking July 3..."
- "this helped spur a broad rally in the stock market...."
- "The declines in energy costs come after an equally sharp correction in the prices of many agricultural commodities...."
- "These moves suggest to economists that global markets, in a near panic early this year to find prices high enough to allocate scarce supplies, overshot the mark and bid prices too high."
- "...many traders have begun to believe demand for oil and other commodities will soften worldwide."
- "The market went out of control on the upside...."
- "...participants realized there was much more demand destruction...."
- "As a result of looser market fundamentals, many analysts believe energy prices could keep falling...."

Ummmmm....I don't know about you, but I have no idea what all this jargon means. I do know that, according to the same article, gasoline demand fell sharply in the U.S. over the past few months, with American driving 9.6 billion (yes, billion) fewer miles in May, compared to last year. That means billions of dollars less to the oil industry in one month than last year.

So it sounds to me like the price of gasoline is the result of a bunch of gaming by commodity traders, and when we consumers stop buying as much, the price goes down to bring us back into their game.

Doesn't that make us feel good?

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