Who Is To Blame For Higher Prices At The Pumps?

Sick and tired of getting hammered every single time thanks to crazy high gas prices? Me too! The current price of oil is on every newscast with headlines shouting about the latest record in oil prices. And most worrisome of all, according to the headlines, this is just the beginning. How much to filler up then?

So who is responsible? Lets shed some light on why you are having to shell out more at the pumps.

This oil price shell game is wrecking the lives of millions of families. Is the tension in Middle East at fault? Is it Big Oil companies who are laughing at your expense while your budget runs on empty? So who do we have to show gratitude for these dramatic price swings? Is it due to a battle between traders going long or short on oil contracts at Big Banks? Is it all connected to the Alberta Oil Sands?

The most frequently heard reason is that there has been a huge increase in the demand for gas thanks to China and India’s explosive economic growth. Countries that produce oil can’t keep up . 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? Of course. Is it the ? Absolutely not.

The economies of India and China6 years which has resulted in 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 use of oil. Though, that’s not the real explanation for oil’s price painful increase.

The demand for oil however hasn’t increased by 100% like the price of oil has over the last 12 months. What’s wrong with this picture?

For for over a generation, the US dollar has influenced the price of commodities. A strong US dollar often resulted in lower oil and gold prices. The incredible drop in the price of the US dollar has resulted in commodities hitting unprecedented all time 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 gold and oil shifting up in price, resulting in you getting hurt at the pumps. Since September 2007, Fed Chairman Ben Bernanke has dropped interest rates 7 times, with the largest of those 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.

I hate to say this, but, traders, especially the large commodity and futures are fueling the commodity bubble. Like with any bubble, emotions take over. “Its different this time”. If history has taught us anything, its that its never different this time. They continue to feed the perception of that demand for oil will force the price of oil over $200, and they don’t want to miss the boat.

So what can you do about it. Let’s get the ball rolling.