Off-Topic: Gas Prices - Open Debate
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Name:
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water_watcher
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Subject:
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Gas Prices - Open Debate
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Date:
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11/14/2008 7:06:51 AM
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when gas hit $4plus oil also hit $150 a barrel. Oil has fallen rapidly back down to $55 to $57 a barrel. Gas is heading lower and will probably go under $1.50 a gallon in the next 3-4 months.
Why did oil prices spike and why are the back down? It is a combination of three things, the value of the US dollar, speculation and supply and demand.
With the low interest rates in the US for so long the US dollar kept getting weaker partly on the fear of inflation and the dollar would be devalued. When the dollar is weak it takes more dollars to buy imports, which on the flip side is great for US manufactured goods that are exported since other countries can buy our goods cheaper with their stronger dollar. Look at Canada. For the longest time the canadian dollar was worth about .70 cents to one US dollar .... ealier this year the Canadian dollar was close to a $1.50 to a US dollar. So oil we buy from Canada became much more expensive.
Withe the global finacial crisis the US dollar has strengthen considerably as other countries lowered their interest rates, plus the US is still looked to as a safer place than other countries and the US dollar has gotten stronger. This has made imports (like oil) less costly, but also hurts us on exports, which hurts US jobs.
Oil is a commodity and is traded on an exchange, when oil was rising speculators buying future contracts also kept driving up the price creating artificial demand on the oil contracts which made the price go higher and higher. Can you say "bubble". :) Now that oil is coming down, the opposite has happened that the speculators can not get out fast enough.
Lastly, supply and demand. Despite what the nah sayers say ... the US economy was very strong. If you remember interest rates were starting to rise and there was this big worry about inflation because the US economy was too strong. That creates bigger demands for energy and gasoline and all transportation fuels to move goods. Since the bank crisis hit, the economy has slowed considerably and energy and oil demand has fallen, I heard yeasterday by over 2.5 million barrels a day. Refineries that were once running at 97% of capacity are now down to running at 86% and building inventories even at that.
The sad part is we will be back to higher prices as soon as the economy starts to turn around. this is when we should be drilling more on our own land to reduce our dependence on imports.
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