Monday, December 22, 2008

Reflections on gas prices and the universe in general

On December 22, 2008, crude oil closed at $39.62 a barrel. Almost uniformly the falling price was blamed on the decreasing demand for oil due to the "worsening global economic climate." See MSNNBC. When oil was over $130 a barrel, the price rise was blamed on increasing demand for oil. You can see the statistics from the Energy Information Administration. (The U.S. Government keeps track of almost everything). The high point in the price of oil occurred from 2005 to 2008. In three years the price of oil went from where it is now, to over $130. In actuality, the price of oil has not dropped, it has simply returned to its historic cost range of only about three years ago.

Now, if the price of oil was somehow linked to demand, as all of the news reports would have us believe, then there should have been a spike in the demand at about the same time the price went up. However, travel was down in January of 2005 over January of 2004. From 2005 to 2006 miles traveled in the U.S. went up only 3.8%. However, cumulative travel decreased .7% from 2006 to 2007. By 2008, cumulative travel had again decreased, this time by 1.7%.

There is no spike in miles traveled in the U.S. There was no increase in demand, in fact, demand was flat. The rapid increase in oil prices had absolutely nothing to do with increased demand in the U.S.

It is incredible that the American public has been so easily fooled by the government and the media. What then caused the tremendous increase in oil prices?

Greed and speculation. If you want to see where the money went read, Exxon's Profits: Measuring a Record Windfall. If Exxon Mobil were a country, its 2007 profit would exceed the gross domestic product of nearly two thirds of the 183 nations in the World Bank's economic rankings.

Oil prices aren't truly down, they have only returned to levels not seen since the huge speculative oil bubble.

2 comments:

  1. I agree completely. That's how I always explain the increase and decrease in oil prices to people. Demand plays such a minor role in the whole picture - it was all speculation, as you said.

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  2. There is a conspiracy theory floating around the internet (I haven't been able to find the source, though people keep alluding to a video on youtube), that says that the current rise in oil prices and the subsequent drop was a deliberate move by American (and Western European) Oil companies to bankrupt OPEC and Russia.

    The theory goes that the oil companies conspired to artificially drive up the price of oil. This would make countries like Venezuela, Iran and Russia very rich from the rising price of oil. Then in conjunction with White House policy they would apply pressure to OPEC and Russia forcing them to run up their government spending to far beyond a sustainable amount. Depending on which news story you read they estimate that countries like Iran need oil to stay above $100 a barrel to maintain their massive budget.

    Then when the time is right (like a few months ago, when oil prices where high and governments like Iran and Venezuela had spent all their oil money) they drop the price of oil and this bankrupts the countries within a few months.

    When I first heard this it sounded like any other conspiracy theory, but when you look at all the data and what has been happening it fits a little too nicely.

    Anyway, like I said I can't confirm it (wow I sound like a real conspiracy theorist, vague references and everything), but if it is true the United States is doing a very good job at winning this economic war.

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