I have done several articles on the price of gas actually more than I had planned. However, as I read some of the comments from people and even some of the email that I have received; I realize that there is a lot of misunderstanding on the part of the average person concerning gas and in particular why we are paying so much for it.

Futures Traders; Hedgers and Speculators Oil “futures” are bought and sold or traded, on commodities exchanges like the NYMEX, New York Mercantile Exchange or the IPE International Petroleum Exchange in London. This is where traders buy and sell futures on oil and many other commodities such as pork, soybeans, coffee and corn, just to name a few. Basically they bet that a commodity such as oil, in this example will be worth a certain amount in the future and promise to buy it at that price hoping that when the future becomes now, it will be worth more. Some of these traders are commonly known as “hedgers”; people that have a use for the commodity who are trying to hedge their position on a commodity. For example, oil companies along with other large consumers like airlines use this method to plan and strategize for the future of their companies. Other futures traders are known as “speculators”; people who have no use for the commodity other than trying to hold onto it until a later date when they can sell their position at a higher price, never actually planning on, or even able to take delivery of the commodity at all.

Who Controls The Price Of Oil? No country, company, OPEC or person actually sets a price for oil or stamps $150 on the top of the oil barrels, actually the oil is not really in barrels at all, it’s just a traditional measure of quantity which is equal to 42 gallons each. The price of oil constantly changes, throughout the day while the exchanges are open. The more people or groups that are trying to buy oil or secure oil futures the higher the price will go, especially when the demand far exceeds the available or future supply. If the supply suddenly goes up, futures traders could lose a bundle, they are in fact “rolling the dice” but it seems unlikely in today’s markets that the supply will suddenly rise or that the demand will drop. China is currently adding 1,000 new cars a day to their roads, their demand grows daily while India is set to launch the Nano (click link below) a $2,500 car, with 1 billion potential buyers frantic to get one. With both of these giant populations already consuming much more oil than they can produce, worldwide demand will certainly continue to climb and along with it, ever higher prices.

Is Futures Trading A Good Thing or a Bad Thing? Some of the world’s airlines are falling on hard times because they sold their futures on jet fuel for a short term profit or worse, they did not buy futures on jet fuel at all, while other airlines have secured futures on jet fuel at a very favorable price. They have cheap fuel so that they can stay in business, with a secure future of cheap fuel. Futures trading can be a very good thing for big business, farmers, food suppliers and our economy in general. The speculators are not universally as well loved as the hedgers are, even though speculators are not doing anything illegal, they do tie up oil supplies along with other commodities and raise prices. How much they contribute to price hikes is debatable, no one really knows for sure. There is some government oversight and all futures transactions in the US are regulated by the Commodity Futures Trading Commission CFTC an independent agency of the US Government.

The Century of Cheap Oil is Over, You Better Get Used To It...



George Carlin RIP

http://www.bellaonline.com/articles/art28755.asp