About Oil Prices

Julia Craig asked:


 
With fuel prices reaching record highs in the summer of 2008, and are still continuing to rise, many consumers feel as if there is no relief in sight. Maybe it is because of Hurricane Katrina that hit the Gulf Coast in 2005, or maybe it is because of the ongoing war in the Middle East, which also seems never ending. Companies are experiencing large losses, which mean higher prices on their goods, and families are cutting down on costs, which mean fewer vacations planned. Sporting events are not always as packed as usual because fans do not want to spend the money that is amounted for gasoline to make the trip to the stadium, racetrack, or baseball diamond. The biggest reasons that fuel prices are so high are the war, increased supply and demand, the skyrocketing prices of crude oil—which have reached a hundred and thirty one dollars per barrel—and political events and conflicts in oil producing countries. It may be years before gasoline prices decrease to where they were five years ago, mostly depending on the status of the war in the Middle East and when it is finally over.
How did the gasoline prices become so great to begin with? Traders in the oil industry bid on the prices of oil based on what they believe it will trade at. If they think that the prices will be high, then they can create high prices, no matter how high the supply is. Also, crude oil accounts for fifty-five percent of the cost of gasoline. A daily change in that price of crude oil, which is determined by the traders, reflects oil price fluctuations.
The rising gas prices are affecting America’s citizen’s lives, whether for leisure or for work. Summer vacations with the family are becoming nonexistent, and the cost of commuting from home to work is really starting to add up and take away from our pockets. Some workers are even being laid off as a result of company losses. We have resulted to public transportation and carpooling. But what about the people who live outside of the urban and suburban areas that do not have public transportation readily available? They end up suffering because they have no choice but to drive to work, and add up the miles, and add up the money being thrown out for four dollars per gallon at the pumps. And even with the rising amount of people deciding to carpool or use alternate transportation to and from work, which would decrease the demand for gasoline, the prices are still not lowering.
Not only are consumers getting hit hard at the pumps, automobile industries are suffering huge losses. Consumers are looking to buy small, energy efficient, high MPG vehicles that will cost them less at the gas stations. Automobile companies produce thousands of SUVs per year and are now having trouble selling them. They even started to offer cash to customers in order to get the gas guzzling roadsters off of the lot. There is a distinct relationship between the rising fuel prices and the amount of cash incentives that were offered to the people who bought the SUVs according to a study performed at the University of Michigan. Traveling expenses are now higher than ever, and most companies are starting to hold teleconferences and other alternatives to flying people out to other offices in different cities for a meeting.
Wars have a tendency to disrupt economies, and that is exactly what is happening in our country. The War in Iraq is one of the biggest players which resulted to high oil prices. The rising prices began when there was a likely chance that the battles taking place in Iraq could possibly damage the oil fields. In 2003, crude oil prices hit a twenty six month high after President Bush and the United Nations decided it was pertinent to disarm Iraq. And since our troops have been overseas, oil prices have done nothing but climb.
All in all, gas prices are expected to remain between four and five dollars per gallon until the end of 2009. What happens after 2009, no one knows because honestly, really, it depends on the status of Operation: Iraqi Freedom at the end of next year. What the oil companies are saying—demand is up and supply is down, pushing gas prices up—is complete nonsense because demand for gasoline has gone down ever since the prices hit four dollars a gallon earlier this year, and we have still not seen any relief on the marquees at the gas stations. Companies are suffering. Consumers are suffering. Our troops are suffering. But more importantly, our economy is suffering, and a recession is not too far away.

Katie

Observer asked:


However, when oil prices are down, it takes WEEKS for it to reflect on our gas prices?

There is something VERY shady about this!
Gary S- If inventory replacement cost are immediate, than gas prices should not just immediately be raised but, immediately be lowered as well. Correct?

Mike

Yoyome asked:


Yahoo had this: http://news.yahoo.com/s/ap/20061117/ap_on_bi_ge/oil_prices_51 and this: http://www.latimes.com/business/la-fi-gas14nov14,1,1475055.story?coll=la-headlines-business on its homepage news at the same time. I have heard election and Republican conspiracy theories but please don’t post a response like that without hard evidence.

Steve

BizAnswers asked:


In the short term, I think it is clear that speculation affects oil prices, but over the long term, I am less than convinced. Specifically, with all derivatives, there is someone on the other side of the deal; it is a zero-sum game unless someone takes delivery. If speculation drove the long-term price of oil, it seems to me that the speculators would be required to take delivery of the oil at some point in hopes of selling it at a higher price. If the speculators are not taking delivery, supply and demand must dictate the price of oil as the long-derivative speculator simply offsets the position of the short-derivative speculator until the contracts settle or expire. Since speculators who do not take delivery are not affecting supply and demand, how could speculation cause a long term increase in the price? News commentators continue to bang the drum of speculation causing the price rises, but I remain unconvinced. Now is your chance to convince me where my analysis falls short.

Susan

incognito asked:


What is the cause of the escalation in oil prices. I have heard it is a supply and demand issue. So is it that demand from emerging markets has increased that much to cause such an increase?

Raul

Talking H asked:


Any particular names that would be hit when oil prices go down to, say, $80 per barrel?

Kimberly

Michael P asked:


Surely gas prices should be determined by the supply and demand for gas, and should not be linked to oil prices.

Pamela

Babaji asked:


With the oil price going up causing havoc in world economy what can a common man do to help the economy of the country? Bring back buggies and bicycles? declare war against the OPEC countries? sit back and pretend nothing is happening?

Lorraine

Anne Catherine asked:


The sky rocketing fuel prices has sent the global economy on turmoil. This is probably because any form of growth and development in the current scheme of things is unthinkable and impossible without oil. In addition rise in oil prices is not restricted. The rise is translated in the form of a price hike in the other commodities also. The economic slowdown and major crashing of the market in the current times is witnessed and combined by the unthought of hike in the fuel prices. Inspite of everything, the governments all over the world have been forced to hike up the fuel prices in order to meet the increasing prices thus failing at saving their citizens from bearing the brunts of inflation, stagflation, and recession.
 
A couple of decades back the adverse economic factors were not a matter of worry for the developed countries. The rise in oil prices also didn’t bother their economy and finances. The US was and is the largest consumer of oil. The hike in the oil prices ideally should have hit the country badly. But as the growth and development in the other sectors were unaffected the country didn’t pay much for the ever increasing rise in the fuel prices.
 
Unfortunately for the US, now the times have changed, along with the other countries the US is also dearly paying because of the damp economic phase and over excited oil prices. The dollar is dropping and the country after quite a many years have been faced with economic factors that were unknown to it. Stagflation, recession and inflation are hovering over the country along with the sky high oil prices. As the productivity of the other sectors have been considerably affected owing to the low market trends, the US have been badly hit by the astronomic oil prices after quite some time. The US has also been hit as its exporters are charging more than what they used to. US exporters like China have revised the rates of export and hence among all the other things, the US also faced difficulties in importing at a desirable rate. Importing premium goods and services at a competitive rate was the motive that drove the US to borrow IT services from countries like India. This was a step that offered mutual benefits to both the sides. The US could get first rate services in the areas like custom software development and web application development by hiring a software company based in India. India for the last few years has been making amazing developments in the field of Information Technology. The flocking of foreign multinational companies was an icing on the cake for young India to make the optimum use of the IT related knowledge. Now things have gone even better as many US software companies outsource software developers along with outsourcing software development. While the US has been able to hire the IT services at a comparatively cheap rate it is still to overcome the much bigger challenges in the other aspects of its economy.    
 

Christian

William Kurtz asked:

Heating Oil prices advanced dramatically beginning on March 26, 2008 – from $2.7980 to $3.3028 per gallon wholesale in the New York market. Of course, delivery costs add to the total cost of the product when delivered into the customer’s fuel tank. Springtime weather is almost here now; but if prices remain at current levels when next winter arrives, will homeowners be able both to feed their families and to keep them warm? With the price of food increasing so rapidly at the same time as the price of heating oil for his furnace and gasoline for his car or truck, will the head of the family be so strapped that one or the other will have to give way? These are worrisome questions.

Was there any inkling of the recent rise in fuel oil prices; might the homeowner have done anything at all to offset it; and can he do anything to blunt the effect of price fluctuations in the future? The short answer is Yes, on all counts. The key lies in an examination of the charts of heating oil prices using Japanese Candlesticks analysis. Specifically, on March 25 the Daily price bar of heating oil was a “Hammer” pattern which arose after a six-day decline in prices. The “Hammer” is a classic bullish signal which warns of a possible reversal of trend to the upside, subject to confirmation by a higher closing price the next day. That is exactly what happened: On the following trading day, prices advanced smartly and closed substantially higher, concluding a three-day pattern which was a variation of a “Morning Star” pattern, which is also bullish. After a brief hiccup a few days later, prices resumed their strong uptrend through most of April, and closed at $3.3028 on April 25.

Had the homeowner (or any investor, for that matter) recognized the “Hammer” and the “Morning Star variation” patterns, he could have acted upon that information, or he could have elected to wait a few more days for further confirmation. Either way, he would have been in a position to profit from the rise in prices which followed.

Here’s the best case: Had he bought a May contract of heating oil at the low on March 25 ($2.7980) and sold it on April 25 at the closing price that day ($3.3028), he would have realized a profit of $21,201.60! That number is derived this way: On the heating oil futures market, each contract controls 42,000 gallons, and each movement (whether up or down) of one cent per gallon in the price of heating oil is worth $420. The difference between his theoretical entry price of $2.7980 per gallon and his theoretical selling price of $3.3028 per gallon was $.5048, or 50.48 cents. 50.48 multiplied by $420 equals $21,201.60.

Would the investor have been able to “catch” the price and enter at the low? Almost certainly not. He might well have waited until trading on the day following the “Hammer” was partially or nearly complete, in order to see whether there had been confirmation of the “Hammer’s” bullish signal.

By way of rounding out the story, it must be pointed out that in order to play at this table, the investor must either deposit funds by way of “margin” or pay up front for the cost of an option. While this example would have required an investment which was probably beyond the capability or risk-tolerance level of most homeowners, an investment club consisting of several individuals could have shared the opportunity and the risk, and could have benefited proportionately.

The point which is intended to be made is that - funds permitting - one does not have to sit idly by in supine passivity while prices of heating oil, gasoline, and other commodities are administered to us. Rather, devices do exist whereby profit can be made from both the advances and declines in market prices if the investor is knowledgeable enough, alert enough, and sufficiently funded to recognize and to act upon key change-of-trend Japanese Candlestick signals when they appear.

Rafael