The Wall Street Journal reports that on Wednesday, prices were dropping so fast for some commodities that trading was stopped:
…a steep decline in gasoline futures Wednesday led CME Group Inc. (CME) to temporarily freeze activity in three of its most heavily traded contracts on the New York Mercantile Exchange. Just past noon EDT, trading in crude oil, heating oil and gasoline futures was halted for five minutes after gasoline fell to its daily 25 cent price limit, which triggered circuit breakers on the exchange’s trading platform.
The last halt in oil trading occurred in September 2008.
I wonder if circuit breakers are triggered when the prices go up more than 25 cents? Ha! As if that would happen.
On Monday, our local gas prices dropped from $4.35/gallon to $4.10. By Monday afternoon it was back to $4.30. Yesterday afternoon it was back to $4.35. I have yet to hear a rational explanation as to why gas already in the tanks in a gas station can drop 25 cents and then back up 25 cents in less than two days.
The reason for the market drop in prices is tied mostly to a strengthening dollar, although the experts are still saying that prices will continue to climb.
In other oil news, the US chiefs of some big oil companies (BP, Exxon, Chevron, Shell) will be appearing at a Senate committee today to talk about why they need oil subsidies. Why do they need oil subsidies? I know they like to talk about how they invest all their profits (really, none of them get paid?) and they need subsidies to continue to look for oil. Really?! So, if JC Penney puts all of their profits (again, no one gets paid) into looking for new suppliers of khaki pants and button-down shirts, should they receive subsidies as well?
Subsidies are ridiculous whether it’s for oil companies or for paying farmers NOT to grow something. Where do I get a subsidy NOT to go to work? Where do I get my big tax break to remain in the United States?Irresponsible for me to ask such a thin? Of course it is, but so are the subsidies the government doles out to big oils (and others).
Gas prices this morning stand at $3.70/gallon in our town, so I thought I would do a breakdown of what’s behind the price at the pump here in the State of Michigan.
- 9% Marketing and Distribution Costs = $.333
- 11% Refining Costs = $.407
- 13% Federal, State and Local Taxes = .481
- 67% Price of Crude Oil = $2.479
So, what’s behind the price of crude oil? This isn’t as simple to break down.
- Supply and demand. While U.S. consumers may be using less oil, countries such as China and India are growing their middle class and their demand for oil. In 1990 there were about 1,046,000 cars in China. The current prediction is that by the year 2020 there will be more than 200 million.
- Unrest in countries tied to oil production and/or distribution (currently Egypt and Libya).
- Of course “unrest” is what triggers speculators to take a gamble on oil – hoping they can make some big money on a supply crisis that may or may not happen. From US News and World Report:
- “[It's a] function of speculation that this will evolve into something a little more grandiose … Should 2 percent of the world’s oil output be shut down for a day, a week, or an extended period of time, is that enough to warrant triple-digit oil prices? Probably not, but the bigger question is … Could that spiral out into something much more significant? That’s what’s being baked into oil prices right now.”
- From CNBC:
- “Speculators are having a huge effect on the market,” said Darin Newsom, commodities analyst at DTN in Omaha, Neb. “A lot of this is betting on the idea that we are going to see some sort of supply disruption later on, and that we could still see seasonal demand continue to grow.”
- Speculators took much of the blame when oil hit its historic high of $147 a barrel in 2008. But as consumers changed their driving habits and started to conserve, the trade quickly unraveled and prices plunged to $35 a barrel in five months.
- Dennis Gartman, author of The Gartman Letter, a widely followed market guide, believes speculators have added up to $15 a barrel to the current price, enough to take it out of its previous trading range.
No, Oil Speculators aren’t causing all of the increase in crude oil, but they are certainly making things worse for average folks trying to make ends meet. We pay higher gas prices directly, but we pay for those increases again in the prices we pay for food and other goods. It has been my opinion that the recovery being touted by the government and the media was only real for Wall Street fat cats, and it is my opinion that we are now teetering on the brink of a new economic disaster for all but the very rich.
Oil is now selling for more than $106/barrel, and the resounding headline is “oil rises on concern about unrest in Libya”. Let’s take a quick look:
- Libya accounts for only 2% of the world’s oil production.
- The United States has an abundance of gasoline in storage.
- Our gas prices have gone up 5 cents nearly everyday for 10 days now.
- Big trading firms have nearly twice as many long contracts open right now for oil as they had in the summer of 2008 (you remember $5/gallon gas, don’t you?).
Speculation is driving these oil prices and our gas prices. Don’t you feel better knowing that the fat cats at places like Goldman Sachs are getting rich again on the backs of the struggling citizens of the United States?
So, it’s time for me to get back into my own speculation about oil prices via the Magic Snow Globe …
The real speculators are buying oil futures in volumes that cannot even be stored at some of the biggest facilities in the United States. This may not be legally wrong, but with so many families struggling just to survive in our country, this is most definitely ethically wrong.
Incoming search terms:
- On February 24, 2011, our price for a gallon of gasoline here in Michigan’s Upper Peninsula, was $3.28. Today, March 4, 2011, our gas price is $3.64/gallon! A 36 cent increase in just over a week.
- A gallon of fat-free milk at our local grocery, now costs $4.29.
- My Saturn Vue gets 25 miles per gallon of gasoline. I’m not sure how many miles my daughter gets per gallon of milk.
- I am tired of the unions demanding their “rights” to collective bargaining. This “right” to put a choke hold on companies and on taxpayers has to stop. The money being poured into the benefits and pension plans for union members by taxpayers who are struggling to feed their families and keep a roof over their head is criminal.
- Hugo Chavez has proposed mediation to bring peace to Libya. For some reason, I suspect this is more about Chavez helping his buddy Gaddafi than caring about the lives of the Libyan people.
- Spring cannot come soon enough for me. Besides gas for the car, the natural gas prices to heat our home are taking a big hit on our budget. Unfortunately, we are having another snowstorm today.
- In 1995 the movie Toy Story was released. On March 3, 2011, I finally saw the movie for the first time. At this rate, I should see The King’s Speech in the year 2027! (For those who like to be more current, The King’s Speech will be released on DVD on April 19, 2011).
The “not so current” -
Here in Michigan’s Upper Peninsula, our gas prices went from $3.28 to $3.45/gallon on Friday. On Monday gas rose to $3.50/gallon. Yesterday $3.55. I am a little nervous to see where the prices are this morning when I head out for work. Places like California are closing in on $4.00 gasoline.
Periodically I have brought out my Magic Snow Globe to address oil prices (it is my version of “speculation”). The globe seems a bit puzzled this morning, but I will be addressing the issues of oil, gas, and a failing economic recovery in the coming days.