AMERICA LOSING THE ECONOMIC WAR
by Paul Maisano current prices @ $ 4.00 gal.
YESTERDAY vs TODAY
Remember back to 2008 when a gallon of gasoline hit $ 4.00?
Well, it’s happening again. Today, a barrel of crude is trading for about $
106.00, that’s about equal to the annual average back just four years ago. This
translates into significantly higher costs for gasoline, diesel, and home
heating fuels for each of us.
Energy costs are on the rise once again!!
At the pumps the average price for mid-grade gasoline is $
3.79 a gallon. Running diesel in your vehicle? It could cost as much as $ 4.20.
If you’re heating the homestead with oil, a 100 gallon minimum fill at $370.00
is so pain full that when the oilman drops the slip in your mail slot it causes
a chill to run up your spine! A gallon of regular gas for your car runs about
even with a gallon of home heating fuel oil at $ 3.70 a gallon.
No matter what the case, it’s getting more expensive to get
to work, heat hot water, or keep your home warm. Even our electric bills, and
groceries, will suffer an increase due to the fuel surcharges in the near
future.
Everyone recognizes that affordable energy is the main driver
of the worlds’ industry. What a way to put the “kibosh” on a recovering
economy.
The $64,000.00 question is………….. WHY?
The oil market supply appears to be somewhat stable. We won
the war in the Middle East and paid the price with American blood. You remember
the food for oil program policy with Saddam Hussein in Iraq. Well, the Bush
administration sold us the blood for oil policy. However, we literally got the
shaft, not the oil.
So, why is this happening to the U.S.? Were we duped? YOU
DECIDE.
In any regard, it’s fruitless to assess the blame for higher
fuel costs on any single particular reason including political inadequacy. Let’s
fast forward to today before I become ill.
Who, or what may be the culprit for these spikes in Americas’
fuel prices, is irrelevant. More importantly, we need to understand the
variables within the issue. How can individuals help reignite stability in the
market?
First, there are certain facts that need be recognized as
fundamental truths. To fully discuss each and every aspect of this complicated
issue in less than one thousand words is impossible. Without a doubt, most
tempers won't allow the long read on this matter! Let us try to simply and
‘cut to the chase’ capturing the main theme.
Many Americans vent their anger upon the major oil producing
countries, referred to as OPEC. This acronym stands for the
‘Organization for the Petroleum Exporting Countries’. The
organization is comprised of 12 countries, mainly located in the Middle East.
The organizations’ leaders meet twice a year in Vienna, Austria, to discuss
their strategy within world oil market.
OPEC’s main objective is to determine the volume of the
‘supply side’ crude oil market for the next year. By keeping the market
slightly ‘choked off’, it keeps the price of the ‘black gold’ highly
stable, and valuable.
It should be noted, that OPEC only speaks for approximately
50% of the worlds’ crude. Other nations, such as the United Kingdom, Canada,
Mexico, the U.S. and many others, make up the difference in production of the
world crude oil supplies.
Remember, OPEC does not set the daily market price. However,
if OPEC is placing limitations on production, does this cause the price to
climb?
The ’supply side’ economic theory impacts the full
market. Americans should ponder the question……. Is the United States winning the
incidental costly physical battles of the world, only destined to lose the
larger economic war?
In the next segment, we continue the discussion on the
expanding oil market in China, a weakened US Dollar, and role of the European
Union in this picture.
Bill Dyer of Cubby Oil Company
THE WORLD OF TOMORROW
In the first segment, of this outline, we laid a foundation
of how ’supply side’ economics impacts the full market. This next piece
shall attempt to outline the evolution of the new world energy market.
Why does the United States continue to unilaterally
financially support the costly physical battles throughout the world and protect
the foreign oil market??
Should we possibly modify our foreign policies to blend
within this new introduction, of the EU, China, India, and the Middle East, and
discontinue playing the role of the ‘big brother’?
Let’s refocus on the main issue of change within the
marketplace. It may help us answer all of those questions. Fossil fuels are sold
on the open world market. Oil is traded in the term of ‘barrels’. The price is
mainly set by three of the largest stock exchanges in the world. They are the
New York, London, & the Singapore stock exchanges.Remember, it’s a commodity
traded daily, so the price constantly fluctuates.
Add into the stew a quick note about the role of something
called ‘oil futures’ in the game. These are a sort of ‘wild card’. Oil
future contracts hedge an investors bet within the market place. Like a Las
Vegas long shot, such a wager can handsomely pay out to the investor. Some
believe this type of oil guessing game should be illegal. It’s no secret, oil
futures can cause havoc in the market place by falsely inflating the commodity
with an aurora of an ‘artificial demand’.
The open market is also affected by world many conditions.
Occasionally, a catastrophe like the British Petroleum accident in the gulf,
severe weather events, conflict in the oil producing regions, or just plain Wall
Street greed, can upset the marketplace by choking supply lines.
Today, the benchmark currency for trading in the oil market
has always been the U.S. dollar. Due to the weakening value of the U.S. dollar
there have been numerous discussions to tie the international oil market into
another currency such as the Euro. However, this idea has yet to sell well!
Unfortunately, the European Community is also struggling within the
re-stabilization scene of the worlds’ economy. In addition, the EU has
complicated financial issues within Greece, Italy, & Spain.
Plus, don’t forget that for decades the Europeans have been
paying dearly for energy.They well understand the high cost of energy. For
instance, today a gallon of petrol in the U.K is roughly $ 6.25. Now compare
this to the price of $ 3.60 for an equal gallon in Boston, MA.
The U.S. dollar still appears to be crude oils’ safest bet on
world trading table. Once the U.S. deficit is under control the energy roller
coaster ride may even out.
Let’s keep going adding a little salt. Complicate this stew
with China in the marketplace. Only a few decades ago, the Chinese used bicycles
and rickshaws on dirt paths…….. using little energy. China has nearly completed
the largest highway system in the world. It has accomplished this great feat in
less than 20 years, less than half the time the U.S. took to build our
interstate highway system. What happens once the general billion plus population
starts buying automobiles to use those roads? This new major market demand
factor has yet to be fully entered into the equation.
China, once the 5th largest consumer of energy, is
now it is just behind the United States in energy consumption. With all its
economic growth China will soon to surpass the U.S. position of causing world
energy costs to skyrocket out of control.
China is a major player in this mess.
We all studied economics 101. Some of us may have slept
during the main portion of the course. However, we all seem to remember the
basic principles of ‘supply & demand’ side commodity economics.
What happens once we calculate the high demand of a new
player, namely China? Is the energy market headed for the ultimate crash?
Maybe Americans should listen to the Bob Marley song, “Don’t
worry… be happy”, while paying $ 7.50 a gallon for gasoline.
Sorry, its’ not doing it for me!!!
Houston we have a problem, but all is not lost. In the final
segment, we can start the discussion on a potential first step fix.
(continued )
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