Tired of getting hammered every single time thanks to crazy high gas prices? Me too! The current price of oil is front page news with headlines screaming about the latest record in oil prices. And most worrisome of all, according to the headlines, this is just the tip of the iceberg. How much will it be then?
So who is responsible? Lets examine some of the reasons why you are getting the raw end of the deal and having to shell out more at the pumps.
The oil price shell game is wrecking the lives of millions of people. Is the pressure in Middle East at fault? Is it Big Oil companies who are laughing all the way to the bank while your budget runs on empty? So who do we have to thank for these wild price swings? Is it due to a battle between traders going short or long on oil futures contracts at Big Banks? Is it all connected to the Alberta Oil Sands?
The most frequently heard answer is that there has been a huge increase in the demand for gas thanks to China and India's explosive growth. Countries that produce oil can't keep up with demand. Even Saudi Arabia recently announced that it was increasing supply to counter demand, and the market yawned.
Is an ounce of truth to this argument? For sure. Is it the Absolutely not.
The economies of amazing during the last 6 years which has lead to an increased demand for oil. The truth is, the US accounts for about 4.5% of the world's population, and 25% of the world's consumption of oil. Though, that's not the real explanation for oil's price increase.
The demand for oil of course hasn't increased by 100% like the price of oil has over the last 12 months. What's wrong with this picture?
For nearly a generation, the US dollar has influenced the price of commodities. A strong US dollar usually resulted in lower gold and oil prices. The dramatic weakness in the price of the US dollar has lead to commodities hitting new highs. Commodities are priced in US dollars and move to balance changes in value of the US greenback.
A lower US dollar has resulted in both oil and gold shifting up in price, resulting in you getting burnt at the pumps. Since September 2007, Fed Chairman Ben Bernanke has dropped interest rates 7 times, with the largest cuts happening in 2008. During that same timeframe, the price of oil has moved from $69.26 in September 2007 to $110 in April 2008 when the last cut was made. Today, oil is around $130 a barrel.
This provides an explosive mix for drivers. Hard working Americans are paying the price at the pumps for a devalued dollar thanks to Mr Bernanke. Lower interest rates were meant to help the banks in light of the housing crisis. Instead, it helped to lower the value of the US dollar and by effect, increasing the price at the pumps.
