10/27/2008

Why Is Gas Cheap Now?


A couple of weeks ago, gas prices started falling. A little at first, then a dime. Another dime. And another.... Seemed like for a while it fell a dime every day or two. I took this picture in disbelief of gas approaching $3. Not an unwelcome change. Then it fell below $3.00. I wasn't sure I'd live long enough to see that again.

Now, on the way home tonight, I saw it posted at $2.46 - TWO FORTY-SIX! Pleased as I was, I thought back to the previous weeks and months with the question:

Why is gas suddenly cheap, and why now?


I've come to two conclusions on this one:


The tangible answer:
This summer crude oil hit an all-time high of a bazzillion dollars a barrel (ok, it was something like $150 or $160). It was expensive. Needlessly expensive. Everyone came up with every excuse in the book and put them on heavy rotation. Turmoil in the Middle East (as if it is ever calm), higher demand (as if it suddenly jumped), lower supply (an intentional condition), blah, blah, blah, blah, blah.... I think a few Shieks got greedy and decided to take us for a ride this summer. Well, they found that they went too far, as people were pushed past the breaking point. Then that artificial price, fell, and fell and fell. Now its about half the price it was at it's peak. But gas prices did fall when crude fell. Why? Well, those sharply falling prices were quoted for "September Delivery". Meaning, the refineries would not get that cheaper crude until September. Then they process it. Then distribute it. Once it finally reached the pumps, September was near over. The downward trend continued, and now with the end of October coming up fast, we are seeing the lowest gas prices in some time. It's really quite logical.

The intangable answer:
As the price of crude dropped off, so did the rhetoric. Apparently there's a big group hug over there in the Middle East. Whatever. Everyone in the oil and gas sector is staying calm this fall. The fall of an election year! Gas prices were front and center this summer, but that decline in crude prices came conveniently before the Olympics and the party conventions. A nice 3-4 week distraction. Then gas prices aren't such a big deal. Maybe we were wrong. Maybe an oil based America is OK. Maybe not. Maybe the oil companies and OPEC want us to forget all about that come the first Tuesday in November. Maybe, one candidate for president is more friendly to oil companies, and they'd like to see him elected. If oil isn't such a problem, you'll vote on another issue or favor the oil-friendly energy plan, keeping the oil industry fat and happy for another four years minimum. Maybe.

I won't forget. I won't forget the calls for energy independence made by Presidents three decades back. I won't forget about the record profits and the lack of new refineries. I won't forget about the strong arming that helped kill the electric car and kept America cranking out internal combustion engines. I won't forget about the way their greed nearly killed the auto industry in America. I won't forget that we consume one fourth of the world's oil, yet only have the potential to produce a small fraction of that. I won't forget that more drilling will only lead to nowhere.

I won't forget.

Is gas prices and energy independence an important issue to you this election? Is it in the top 3?

5 comments:

Mr. ToughMoneyLove said...

With the rapid changes in prices, it is now confirmed that speculation, not demand, has been the driving force in oil and gas prices. OPEC action hopefully will have little effect.

Tosha said...

gas is $1.99 here!

Mr. (not) the Jet Set said...

@ Mr Tough - It was a bubble. Everyone is looking for the fast money and the hot action. Tech stocks were a bubble. Housing was a bubble. Oil was bubble. As for OPEC, they do what they do because their collusion does have an effect. I contend that they have political motivations. And that prices will stop declining post election.

@ Tosha - Stop teasing! I saw a place this evening with regular pasted at $3.39, while several nearby were at $3.42. When I came back by an hour later, they were sold out at the place that was 3 cents cheaper.

Tosha said...

Sorry! Gas is now 1.89 after a .10 a gallon discount from kroger.

Mr. (not) the Jet Set said...

You're killin' me, Tosha.

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