Oil Price Crisis Or the Next Bubble - 7 Things to Consider About High Oil & Gas Prices to Save Money

By Chris Swain

Are you sick and tired of the so called "experts" telling you what is causing the rise in oil prices? There seems to be a reoccurring theme when it comes to their thinking. They talk about seven reasons for the sharp rise in oil prices. This short article summarizes them in no specific order.

Global Politics is the Culprit

This sounds like a cop-out to blame it on political instability in the world. Hasn't there been a war going on in the Middle East for a couple of years? Currently, the focus is on an Israel's impending conflict with Iran.

Then there is this production disruption in Nigeria caused by political unrest as to who owns the oil rights. Nigeria is the largest oil producer in Africa, the eleventh largest producer of crude oil in the world and a member of the Organization of Petroleum Exporting Countries (OPEC).

U.S. Politics: Blame the Politicians

There are two primary political issues causing this to impact oil prices. The first is the political clout of environmental groups and their opposition to any new drilling. Their alarmist views have also caused politicians to tax and regulate the production and consumption of oil beyond belief. For the first quarter of 2008, the average state gasoline tax is 28.6 cents per US gallon, plus 18.4 cents per US gallon federal tax making the total 47 cents per US gallon.

The second is the 2008 political elections. There is a whole lot of pandering and saber rattling going on from both parties. These ramblings are having a negative psychological effect on the confidence of consumers.

Why the Sagging Dollar is Causing Oil Prices to Soar?

There is not a one to one correlation, but a falling dollar usually is associated with a slowing economy. When the Federal Reserve started lowering interest rates last August oil was trading for $70 a barrel. Since then the value of the dollar (.DXY Index) has declined about 10% while the cost of oil has doubled.

Economic Fundamentals

How does the economy hold up? The answer will really depend on the employment. So far the monthly jobless numbers and unemployment rates have held up remarkably well.

The Fed has on balance has managed interest rates, employment, the economy's growth and inflation on a tight rope. Their bet is that their current policies impact on industrial production will cause a decrease in oil prices.

What's This Supply & Demand Talk

This by far is the most confusing part to the rise in oil prices. There is this theory that global demand is up in developing nations, India and China. But just how much is what the disagreement is about.

The International Energy Agency report out on July 1, 2008 reports "Global oil demand is forecast to expand on average 1.5 million barrels a day, or 1.6%, to reach 94.1 million barrels a day by 2013. In comparison, last year's report forecast annual demand growth of 2.2% a year." While "Global oil-supply capacity is projected to rise to 96.2 million barrels a day in 2013 from 90.4 million barrels a day this year."

From the report, you can see if there is projected demand for 94.1 million barrels and anticipated supply of 96.2 million. Where is the shortage and what's the crisis? What about the growth of oil alternatives - ethanol, wind, solar, coal, etc. and their impact on demand and supply?

Speculators Causing the Problem?

Speculators can amplify trends but can't change directions or create those trends. To do so would repeal the law of supply and demand. Speculators (commodity traders) are two parties entering a trade in which is a zero sum gain.

There is a "mirror trading partner" for each trade. There is a buyer and a seller of the trade. Each trader is hedging a bet that the price will go up or down. So, a buyer thinks the price will go up and the seller thinks it will go down.

What Do The Charts Say?

When you look at the price of oil over the last year, you see it went from $70 a barrel June 2007 to $140 a barrel in June 2008. Looking at the cumulative impacts of the other six reasons for the increase in price, ask yourself does that makes sense. Back in the 1990's internet stocks could double in a day. Recently, housing prices could double in a couple of years. Did the prices for internet stocks and home prices remain at those levels?

Does it really matter what the experts say the cause of high oil prices are? How would you like a free ebook giving you over 50 tips to help you save a bundle at the pump? To learn these secrets on how you can get more out of every drop of gas in your car with little effort on a shoe-string budget, I invite you to visit http://www.chrisswainrecommends.com/gastips to get your free copy today.

Chris Swain - Wealth Coach

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