Pay attention…there will be a test at the end!
So, I’m watching the network evening news this tonight, and I take note of the report that gasoline prices have been rising steadily over the past several weeks—which is really not news if you’ve been to the pump yourself.
Interested, I decided to do a little researching on the heels of what was reported in the news. What I found to be interesting are the chief reasons why we are paying so much. One reason is understandable, while the other is one of those strange esoteric dynamics of economics.
Marginally-speaking, there is very little political leaders in this country can do to lower the prices of gas…regardless what the candidates running for the White House are telling us. Outside of a presidential release of the strategic oil reserves, it’s just out of our hands for the most part (President Obama did just that last June, which only resulted in a 3 cent drop in prices over a period of a couple of weeks). Among the most predictable of the reasons for the rise in the oil prices is the saber-rattling between nuclear-ambitious Iran and the West. These “global demand shocks,” reflecting the turmoil in the Middle East comprise the majority the reasons in the price rise.
The second reason is based on the ambitions of those seeking to fatten their incomes. Oil future traders and other market speculators invest capital in the oils markets, betting on prices—and their portfolios—to rise, which they do whenever they infuse more speculator funds into the market. When prices rise, it gives speculators more of an incentive to invest more. And round and round it goes.
Yes we could drill more (which the country has been doing for the last 8-10 years...more than under the previous administration), but between exploring suspected oil fields, research, gathering the necessary capital for investment, associated start-up logistics, licensing, government regulations/requirements, operations costs, and the like, any new addition to the available supply wouldn’t reach the market anywhere from 5 to 8 years. Simply put, proclamations of “Drill, baby, drill!” are overrated.
And given how Americans are still opting to drive expensive luxury model automobiles and SUV's--despite the already soaring prices at the pumps--it speaks more to the reality that we as a country have a fuel consumption problem, and not a supply problem. Simply put, there is no level of oil drilling that our insatiable and undisciplined appetites for it's need can't surpass.
If politicians would stop engaging in scare tactics and admit there are no simple answers other than America going back to creating something the rest of the world wants...like alternative sources of energy!