I just received an email from my son-in-law, Larry Phillips, who is currently living in China with my daughter. She has a position with Caterpillar and they fly home to the states from time to time.
This email contained an "Open Letter" from United Airlines to their customers. Basically the open letter was requesting help from their customers or the public to help restore market restraints to help prevent or control "speculation" on oil futures contracts.
Now, I need some help here. I am NOT an expert in this area by any means but I try to listen to "both sides" of this debate. And if YOU have any expertise in this area, please comment below.
The one side (United Airlines and many others) are saying that speculators are driving up the price of oil. The other side is saying that it simply boils down to market "supply and demand". There is a big difference between the two.
Speculators can include anyone who buys a stock with the hope it will increase in value or they can include people investing in real estate with the hope of an increase in value. This is good old-fashioned investing - buy low and sell high.
Market supply and demand, however are market "forces" that can affect prices either up or down. Simply put, if more people demand a certain commodity such as the increasing demand for gas in the U.S., China, India and Europe and elsewhere, the price for gas is going to increase. It's basic economics.
People buying gas in this case are not doing it as investors (speculators), they are doing within their normal lifestyle. The only way to really drive down the price of gas is NOT by curtailing "speculators" or by penalizing oil producers but by decreasing demand. A decrease in demand can be accomplished either by a change in lifestyle (demanding less gas) or by increasing the use of alternative sources of fuel (wind and nuclear, for example).
It boggles my mind why Congress doesn't act on "real" facts about nuclear energy or new oil drilling in the U.S. or Alaska with, of course, proper constraints to protect the environment. There is too much emotion and not enough real facts when it comes to these touchy subjects.
High gas prices, of course, are affecting the trucking industry, but not only them. Shippers are also affected. And the general public will ultimately be affected as well. If the price of trucking (gas) runs beyond a shipper's budget, they look to other sources for transportation. Intermodal (rail) has seen an increase in demand due to the high fuel costs.
And when intermodal transportation gets too high, shippers will look again to trucking (or any other alternative).
Essentially, the American public does NOT want to curtail their lifestyle yet (demanding more and more fuel) until they may be forced to by high prices that they cannot live with. How high do gas prices have to go before the public "throws in the towel" and decreases their demand?
Only time will tell.
The other alternative to decreasing fuel prices is to increase supply. President Bush is not having much luck with our "dear friends", the Saudis and other OPEC members.
I just wish there was more easily obtainable unbiased facts about oil exploration here in the U.S. and developing nuclear energy. I'd like to know if there are other real alternatives to fossil fuel and if there could be incentives established to pursuing these.
So, please comment of this. If I'm wrong - let me have it. Don't be shy. I'd prefer to stick with economics rather than politics in my discussions but you know how that goes. It's much easier to start blasting others than it is to do some homework and research into some of these issues.
People want simple answers. Sometimes this is attainable. Sometimes not. But we need to be asking the right questions rather than looking for simple answers.
That's it for now. And watch your driving speed.
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