The rising price of gas is a constant issue and the reason is very complex. The price of gasoline is 80% oil. So where does the price of oil come from?
- NYMEX (New York Mercantile Exchange) is a futures market and this is where risk is transferred to speculators from farmers, oil riggers, etc.
Last Friday, the price per barrel of oil closed at $106.71 cents per barrel. That’s an April contract. The oil contract is 1,000 barrels, which at today’s price costs $106,710. The price of gas on average is around $3.74. In September 2011 alone, the price of gas rose 41%. When President Obama took over the White House in 2009, gas was at an average of $1.79. Gas prices have been steadily rising for the past 3 years.
So, why are the speculators saying that they think oil is going up?
- They take into consideration the conflict between Israel and Iran and how that will affect the world oil supply
- Another factor is President Obama’s policies. The current administration is concerned more with reducing the demand for oil rather than increasing the supply. This suggests to speculators that the U.S. policy is to have higher oil prices and needs to reduce the U.S. current consumption - which is 20 percent of World oil. On the supply side, if this administration were to say Yes to open up offshore drilling, to utilize the keystone pipeline and drill in Alaska, then the price of gas would likely decrease 50 percent in a matter of weeks.
It all comes down to supply and demand. The price of oil not only moves with the actual increase and decrease of supply and demand, but also in the anticipation of. If speculators believe the U.S. has a policy to increase supply, oil prices go down.
For more information on managing your finances or other financial advice, visit DLG Wealth Management. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.
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