Oil Markets: Speculation or What?

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.

Comments

[Marie]

I am one that has cut back on my lifestyle. I have been trying to find a job I can do from home so I don't have to use gas to go anywhere. I have started a garden and raising animals for food so I don't have to spend that money at the grocery store because the cost of fuel has jacked up the price of everything else.
I decided that I am going to get training to be a freight broker and I will not take the truck drivers money like is going on now. My husband is a truck driver and the man he leases from takes most of his pay. I PROMISE I won't do that. I am all for the hard working Americans that are just trying to take care of their families. Not for those that are sitting back and making lots of money off of the hard workers so they can live high on the hog.
I do hope the issue of high fuel prices is resolved soon. It is hurting the truck drivers and small companies. Those that used to have delivery service are suffering also. The pizza delivery jobs are a nighmare. The company doesn't want to pay for the fuel and wear and tear on the vehicles the delivery people own and operate and the people ordering the food and wanting it delivered so they don't have to get out and use their gas don't want to pay for the drivers gas, (tip) so the drivers are paying for the gas. Most of these people are trying to make a living doing this because they can't find any other job. It is actually costing them as it is costing the truck drivers.
I may be just rambling but it is my opinion. I could go on and on but we all are in the same boat together and it is full. If the prices don't go down soon we will sink that boat.
Personally, I vote for a horse and buggy. It may not be as luxurious as the cars these days but we will get where we are going and we will all slow down and live life to its fullest instead of trying to fit a century of events into one lifetime.
Maybe God is trying to tell us something.

[stephen bradley]

The question remains the same supply and demand. Now i watch the market news daily and the demand on gas in down our reserves are up , so isnt gas prices and fuel prices down? Because the studip people who are pushing the prices up Buy Loaw and sell high. Now if congress would do what they said "make the speculators take prosession of the fuel they buy. That would slow down those stupid idiots from pushing the prices up so high and making it hard on people and small companies. At the rate of increases in fuel and gas its putting so many people OUT of Business. Its a shame. Back to trucking its killing my company im on the edge of going out of business. Not sure how much longer we can hold on.The sad part about it is the brokers are charging the shippers more money to haul the loads and their not passing it on the AMERICAN TRUCKER.

THANKS STEVE