Surge in Oil Prices - Self Fulfilling Prophecies
Rising Gas Prices - Everyone has noticed this, and felt it! The way these gas prices are rising is insane. As the market closed today, Crude Oil was priced at $131.70. I am quiet frankly getting very annoyed at this development (as is most of the world). I remember last semester in college we were debating whether Oil would hit $100, now it is at $132, and everyone is saying it will hit $150.
My personal take is that this whole rise in gas price is due to pure speculation. I know many are attributing the price rise to increasing demand from China and India, but I can't imagine China and India consumption to have increased that much in the past one to two years to suddenly have a spike in gas price.
The place I live has gas prices over $4, and it takes me about 45 plus to fill out the tank, and I own a 1999 Honda civic. My car usage basically involves going to college and coming back, and that's it. Since, I have already graduated, and am now concentrating on taking GMAT, and then MBA; I don't use my car that much except for going out with my friends. Due to this, I haven't yet experienced the Gas Price pain, but the price rise has affected my family enough that it has had me concerned. My brother drives a lot, usually for coaching tennis, volunteering at a cancer hospital, going to college, and various other activities that involve him driving a lot. So, he pays a lot for filling up the gas, and constantly complains about the gas prices. I think all these investors with their speculation that gas prices are still going to keep higher are driving up these gas prices - a perfect self-fulfilling prophesy! They think gas prices will rise, they bid higher price, and gas prices rise. I think the WHOLE WORLD has bought into this!
My dad thinks the rise in gas prices is due to Iraq War and Oil Corporations like Exxon Mobil, and can't imagine why they wouldn't just forgo a few profits, and lower gas prices for the benefit of the people.
I am a bit stumped as well at how gas prices are determined. I am going to look at it, but I am guessing, Oil producing countries along with OPEC members, sell the crude oil to refining companies like Exxon Mobil or Chevron, who later refine the bought crude oil and later sell it to end users like us. Now, I am sure that there must be some sort of long term agreements on price of crude oil between oil producing countries and Corporations Like Exxon Mobil. I can't imagine that Saudi Arabia, Qatar, Venezuela, and other OPEC nations sell oil to refining companies on spot market. If this is the case, I would say there is definitely a room for some flexibility in oil prices. Gas at this price is unhealthy for everyone, Exxon Mobil might make money now, but if economy falters and people cut on travel, and adapt other measures declining their dependence on Oil, this would only hurt the Oil Corporations, they are digging their graves for short-term benefits. And you know what? I am all for it! The sooner we decrease our dependence on oil, the better!