What in the world is going on with gas prices?

[IsItJustMe]

About a year ago it was over 4 dollars a gallon. It's around 1.60 around here now in the mid-west. These price swings are radical.

[Deja Q]

1. Hmm, mood swings, hot flashes, speculation, and/or deflation...

I say it's mood swings and speculators.

[LiberalFighter]

13. They killed the speculators. About time!!!

[Kingofalldems]

2. Someone posted here that gas prices peaked

at the very time the stimulus checks came out.

[ben_meyers]

3. It's the neo-cons trying to help McCain, they will go

back up just in time for the Thanksgiving travel weekend.

[Skink]

4. Prices are up a bit according to Bush taking office.

that's to be expected. Still resonable. If I wan't to drive to Austin Corpus from SA I can.

[Jade Fox]

5. Here's my theory.....

I think the oil companies realized they were helping tank the economy by jacking up the price of gas so high just to get some more record profits, and they are now doing some quick back-pedaling.

[ProfessorGAC]

20. Don't Forget The Speculators

There's a new sheriff in town and they know they needed to cool their jets a bit, because now people would be watching how those numbers were being manipulated and artificially inflated. They were providing almost zero value to the transfer chain except to the producers who were suddenly getting way more than the product was worth, despite no real significant change in supply or demand.

I think the potential for a much more watchful eye on the markets is causing some of this as well.
The Professor

[ThomWV]

23. There are 3 of us who were saying this last year, you are one of them

As I recall the shouting matches of last spring and summer you were one of the few who understood the role speculation was playing in the price of oil products. I personally just wanted to pick up the Peak Oil people and slap them into reality. Yes, oil is a nonrenewable resource, and yes the more we burn the less we have, and maybe even yes we've gone through half or more of it, but it was not lack of supply that was driving the price up and the fact that world wide the resource had diminished was not what was driving the price hike. It was also idiotic to say it was Indian or Chinese demand that drove price hikes; yes, their demand was increasing but their total use was just a proverbial drop in the bucket. Of course to say that 6 months ago was to utter heresy before the lord of common wisdom. Remember? I know I was called a moron many times for saying it.

[ProfessorGAC]

25. Moron!

Sorry Thom, i just had to! You know that!

Yeah, i remember all that. Geez, even major newspapers (Chicago Tribune lead editorial) were disputing the impact of speculators. This despite the fact that futures always took the big leaps in price, not the oil selling that day or that week. Then the oil kept churning up on a daily basis, little by little, to meet the futures prices.

All one needed to do was look at the pricing data and it was obvious. At least that's what we morons thought.
GAC

[ThomWV]

26. et tu!

:~)

[ProfessorGAC]

28. Hey I Called Myself One, Too

So, i'm in good company.

In case we don't connect, have a good turkey day.
GAC

[NashVegas]

29. And Then There Was the Threat of Re-Regulation

Talk of closing that Enron loophole had to have made some get out.

I've got to remind y'all - this is very similar to what happened in 2006 - when high gas prices helped elect Dems, IMO.

[Jade Fox]

30. I hope you are right, Professor.

[MannyGoldstein]

6. The Oil Bubble Burst

There was never an actual shortage of oil - it was merely a matter of The Predator Class becoming convinced that oil was the next way to make a fortune, so all of the Predators wanted to buy oil, which drove up demand and thus the price. Once the Predators realized that prices weren't going up any more, they stopped buying oil, and prices dropped back.

[Terry in Austin]

12. JABAT

Sorry - Just another bad actor theory.

Yes, there was an oil bubble. Traders buy and sell commodities, preferably hot ones, and "hot" can be self-fulfilling. Yes, traders are despicable parasites who need to get honest work. But so what? What remedial action does this lead to? What does this help us know about managing this declining and very valuable resource?

And yes, there is an actual shortage of oil. Since about 2005. World supply is depleting 7-9 percent annually, and demand is still rising by 1-2 percent.

The Financial Times on a new IEA report:

Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.

In Richard Heinberg's analysis of the article, he points out that new annual production capacity needed just to keep up with the decline rate is 6.8 million barrels per day -- the equivalent of a new Saudi Arabia every 18 months.

Even with the the IEA's "revised" decline rate of seven percent, that's still 5.3 million bpd. A new Saudi Arabia every two years, then.

[MannyGoldstein]

16. There's An *Anticipated* Shortage

If there were an actual shortage, prices would still be through the roof, and/or gas stations would be out of gas.

[pampango]

18. Most speculative bubbles follow the same path.

Whether it's oil prices, housing prices, the tech bubble and numerous others throughout history, once the speculation starts is feeds on itself ("Housing prices never go down; they're not making any more land, so prices will always rise; we're running out of oil and China/India are bidding it up; tech stocks are the wave of the future; etc.). There seems to be some logic behind the upward spiral of prices; plus everyone seems to be making "easy money" riding the wave of speculation, so more and more people pile into the market.

It turns from a futures market (and a way to hedge your risks against future unexpected events) into a Ponzi scheme in which those who got in early make a bundle and those who get in too late say "goodbye" to their shirts. As anyone can tell you (especially tech investors in the late 90's and home owners now) when Ponzi schemes collapse the decline in prices is anything but smooth and gradual.

[Idealism]

7. Lets say you owned a resource everyone wanted

And you jacked the price of said resource way up, claiming everyone wanted it and new people could afford it because their country was becoming 'modernized,' so the demand was way up. You kept raising prices until your needed commodity led the world into a recession because you have a captive audience that must fill up their cars with your product once a week, on average. Now that the world is in a recession, wouldn't you try to lower the price to make it more affordable to people, so you can still make at least some money back?

This is just one side of the equation, but oil companies bullshitting us with the 'new demand from China and India' was complete crap. Last month the price of oil dropped 40% alone, in that same span gas stations reported business down just 12%. Why such a huge disconnect between price and demand? Because it was artifically inflated to begin with. Thank speculators and greedy oil giants.

[TheKentuckian]

8. They'll go back as soon as possible

I think we've wrecked the world wide economy to the point of getting mercy combined with the speculators have completely gorged themselves and are puking some back into the trough.

[Muttocracy]

9. years ago I decided the price of airline tickets had nothing to do with actual travel costs

because there was so much probability, speculation, computer modeling, whatever. It wasn't really about the cost of getting from point A to point B.

I feel the same way about gas prices this past year - the price is not very well linked to the cost of production.

[Sinti]

14. Yep - the price and the COGS are pretty much separated at this point

in history. For any given product generally the price you pay is "what the market will bear" - a figure completely separated from what it cost to make and/or buy at wholesale, ship, merchandise and advertise. Once upon a time, in a far away land, the price of things was based on COGs with a mark-up for profit. Then they found out you (not you personally - you the general public) will buy plastic crap that costs $12 a gross for $5 each and threw the whole model out the window.

[Doctor Cynic]

10. It's the banks and hedge funds who are desperate for liquidity, and thus need to sell anything.

[KharmaTrain]

17. Bingo...

Note how the price of oil rose as the housing bubble was bursting...banks were trying to cover their losses by speculating on oil and robbing Peter to pay Paul. The game almost worked except the banks dug themselves into too big a hole for this game to be effective.

Also, when the price soared, it all but put a pair of lead boots on the credit freeze...slowing down the economy that added to even more of their problems. But, of course, we, the taxpayers, will be left holding the bag.

[Terry in Austin]

11. Petroleum market as a system

Taking a step back, you can view this as a system with internal controls (feedback) that find a price equilibrium within a fairly narrow range when it's functioning properly.

We're seeing wild oscillations in that system now, a malfunction known as hunting:

Systems which include feedback are prone to hunting, which is oscillation of output resulting from improperly tuned inputs of first positive then negative feedback

More on this in the piece on control theory:

physicist James Clerk Maxwell... described and analyzed the phenomenon of "hunting", in which lags in the system can lead to overcompensation and unstable behavior.

This is more of an impersonal, engineering-geek take on the subject, but it might help identify some of the "improperly tuned inputs," maybe lead to a more comprehensive understanding of the problem that goes beyond the usual discussions, which seem to be about finding bad actors to point fingers at.

It may well be that even with no bad actors, there would still be some things out of whack in the system as a whole that would make it continue to be unstable.

"Inputs." Hmm... long-term supply might be one.

[LaPera]

15. Enjoy it while it last...anyone who doesn't t think prices will go back up again

is living in a crazed fantasy world.

[riqster]

19. It's a blip. Big Oil has a long-term strategy to keep prices artificially high

This got buried by the war on them pesky tarrists, and shows that Big Oil's record profits were a long time in the making, and will be with us for the foreseeable future.

[Odin2005]

21. Falling demand popped a commodity bubble.

I'm no denier of Peak Oil, but right now the claims that we would be seeing $10/gal gas by 2010 or whatever now seem ridiculous.

Just as ridiculous are these conspiracy theories that seem to say any change in gas prices is ultimately part of some plot by Big Oil.

[jpak]

22. GOP connected hedge fund speculators sucked up your stimulus check

and now they are hiding their/your cash offshore...

:tinfoilhat:

[melm00se]

24. this is prety much mirroring other

commodity bubbles:

Platinum

2200 to 800 per OZ

Silver:

~20 to <9 per OZ

Gold

~1000 to <750 per OZ

Copper

~4 to ~1.50 per pound

Aluminum

~1.50 to <0.80 per pound

Oil

145 to 54.50 per bbl

In order:
Platinum 64% drop (from high to low)
Silver 55% drop (from high to low)
Gold 25% drop (from high to low)
Copper 63% drop (from high to low)
Aluminum 47% drop (from high to low)
Oil 63% drop (from high to low)

[slackmaster]

27. Some big investors took a bath on futures contracts

And that makes me smile.