Gas Pump Blues

It seems that each time we fill our gas tank we are paying more than we did the last time. If you are like me, you are probably wondering; WHY?   My good friend Gunther Karger is an economic analyst whose opinions I highly respect. Below are some excerpts from an email I received from him this week. It clearly and simply outlines the issues and offers YOU and I an opportunity to do something about the problem. I hope you will read to the end and take some action like I did, after all, it’s your money too. If you would like to receive future emails from Gunther you can contact him as shown below. Blessings, Neil “Although some oil production has been lost from Libya, the rest of the oil producers have increased production to offset any shortages. So there is no shortage of oil and if there were, our vast strategic reserves could be tapped which  they haven’t yet.

• The demand has not significantly risen due to the continuing world economic recession, increasing efficiency of autos and use of alternative energy. U.S. oil consumption remains stable at about 20 million barrels per day.
• The cost of oil, that is what it costs to find, pump it from the well, store it and transport it has not risen significantly. The cost of oil production ranges from a low of about $5 per barrel in Saudi Arabia to $20 in Venezuela and $35 in the North Sea to higher levels in Alaska and deep water offshore. The estimated average cost of oil worldwide is about $35 per barrel, up from $25 five years ago. Since production costs represent 65% of total cost, I would estimate the total cost would average about $54 per barrel. Allowing for other costs and profits, I would estimate the worldwide cost of oil delivered to the user to be no greater than $75 per barrel which is about where oil should be and actually was before the Mid East exploded. Anything above $75/bbl is excess profit and unjustified by economics.

Two thirds (66%) of all futures trading is done by speculators who trade oil futures. None of them ever take delivery nor produce one barrel of oil. They use events such as weather, terrorist attacks, accidents at oil fields, and even create false rumors to create the impression that oil production will increase or decrease as a result of such events. This can artificially and suddenly increase the price of oil by creating the perception that the oil supply will increase or diminish resulting in the oil traders bidding up or dropping the price of crude futures. Although the price change is felt nearly immediately, the delivery price wouldn’t be seen until the time specified by the contract delivery with immediate effect at the gas pump which typically is at least 3 months ahead. More significant, the traders trigger price changes on potential future events which often don’t even happen.

• These traders can make enormous profits quickly

What can be done to stop this casino operation that rips us off at the gas pump and dampens the economy enriching one industry and a few speculators? Tell your congressmen and senators to enact legislation that dramatically limits speculation or at the minimum, tell the regulators to raise the margin at least to 50% where it is for stocks.”   Gunther Karger is available for consulting and speaking engagements. email to Gunther@ieee.org or call 305-378-0311.   Neil again: You can easily communicate with your Senators and/or your Representative at the sites listed below: http://www.senate.gov/general/contact_information/senators_cfm.cfm http://www.house.gov/house/MemberWWW_by_State.shtml