The consumption of gasoline in the USA is dropping as prices skyrocket. And yet gasoline prices continue to rise. Why?

Who controls gas prices is a question that many consider. Looking at market forces, Supply and Demand, provides a partial answer.

On the Supply side, the disparity between growing oil resources (new oil discoveries) and oil production has been increasing since 1980 as the growth in production outpaced the growth in oil resources. Economists are predicting that oil prices will continue to rise until a new market equilibrium is reached where supply satisfies world demand. Also, the turbulence in the Middle East, especially in Iraq, and the instability in West Africa, has led to a reduction in oil exports.

On the Demand side, the most significant factor affecting oil prices has been the increasing demand worldwide by emerging industrial countries: India and China, specifically. These two countries are becoming huge oil consumers as rapid urbanization, growing industries, and higher living standards dramatically increase energy usage. China has seen a doubling of oil consumption over the last 10 years, and expects another doubling in less than a decade, as oil consumption has been increasing by 8% per year since 2002.

Transportation accounts the largest share of oil consumption, reflecting the growing rate of vehicle ownership. China and India are experiencing rapid growth in vehicle ownership which now accounts for 75% of total oil consumption. This compares to the USA at 70% consumption by vehicles.

Also, as world population increases, so will the demand for oil. Production per capita peaked in 1979 when population growth exceeded oil production. Since then it has been declining. World population in 2030 is expected to be double that of 1980.

So, who controls gas prices? Perhaps OPEC by controlling exports. Or the large integrated oil companies like Exxon Mobile and ConocoPhillips who are making record profits. Or even the companies in the distribution chain: the refiners and gas station owners.

Who controls gas prices? Many would respond that it is the large integrated oil companies. Why? Because the oil companies sell their oil to the highest bidder, and then repurchase the oil from the lowest cost supplier.

Who controls gas prices today is predominantly the Institutional Investors. Hedge fund manager Michael Masters testified before Congress in May of 2008 about his belief that "What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors...". While the press generally cites the increase in demand over the last five years from China for the rise in prices, it fails to mention that the during this same five year period Index Speculators' demand for petroleum futures has increased nearly equal to China.

OPEC's Secretary General Abdullah al-Badri provided statistics in June 2008 that showed rampant speculation in the oil-related financial markets. According to al-Badri, the "paper market" for oil equals nearly 1.36 billion barrels daily, or about 15 times the 87 million barrels daily of current world consumption.

Institutional Investors face very little oversight regulation with regard to manipulating the spot price of oil. As a result, they truly do control its price.

What can we do about it? We could wait for Congress to introduce new legislation to end the manipulation by the Institutional Investor. We could wait for the SEC Chairman to take the necessary action to control this situation. Or we could take action ourselves by reducing our consumption of gas in our own vehicles.

The automakers will be introducing high mileage vehicles in the near future. GM has announced its Chevy Volt, an EV (electric) for 2010 with a small engine for recharging the batteries. The Volt is expected to average over 150 mpg.

There is also the Hydrogen Fuel Cell car, which is at least a decade away (I don't hold much promise for this design).

And there will be the next generation of the current Hybrid car: the pluggable Hybrid. With advances in battery technology, this next generation Hybrid will average over 100 mpg. It is slated to be introduced in 2010.

However, there is something we can do today to dramatically increase gas mileage (up to 50%) with existing technology. It is inexpensive and easy to install on our vehicles. It is not harmful to the engine and will reduce emissions.

The system improves gas mileage by capturing wasted energy from the engine and then reintroducing it to the engine as needed. This is same approach that Hybrid car technology applies. Wasted energy occurs when the engine is idling, usually when the vehicle is at a standstill or when it is coasting down a hill. The system captures the wasted energy by converting water to a highly combustible gas, oxyhydrogen (HHO) through electrolysis. It's like running your car on Water.