8 reasons why gas will hit $5 a gallon this year
http://bottomline.msnbc.msn.com/_news/2012/02/25/10496561-8-reasons-why-gas-will-hit-5-a-gallon-this-yearThe price of gas is a widely covered news item these days. Oil prices have moved up from $75 a barrel in October of last year to more than $100 a barrel currently. And the trend continues to point toward even higher oil prices. Of course, along with the price of oil, gas prices have also risen, almost in lockstep.
The price of gasoline today is 10 percent higher than it was just two months ago. The average price for a gallon of regular is almost $3.62. Gas prices in January have been the highest ever recorded price for that month. Many economists and energy analysts believe a rise to $4 a gallon is inevitable. But their estimates could be grossly understated. Gas will reach $5 a gallon before the end of the year.
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Two warring trends are pushing and pulling gas prices. On the one hand, Americans now drive less than at any time in the past 11 years. On the other hand, gasoline and oil inventories are at very low levels around the world, and traders believe that supply will tighten significantly. The fact that Americans drive much less will not offset an interruption of supply from the Middle East, a decision by refineries to charge more to turn oil into gasoline, or higher demand from emerging economies like China and India.
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1. Strait of Hormuz
About 20 percent of the crude oil produced in the world is shipped through the Strait of Hormuz, and Iran has threatened to shut down shipping traffic through the Strait. At its narrowest, the passage is 30 miles wide, so there is a realistic case that a conflict could close it. Iran has already been isolated as a trade partner by U.S. and EU sanctions. The regime in the country has made a number of threats about what it might do if its “national interests” were threatened. If Iran follows through with its threats, the period the passage is closed could be very brief if the U.S. Navy, which has a carrier group in the region, moves to reopen the lane. But it is not clear that the American government would make that decision without the open support of allies or the United Nations. A closure of the passage, or any escalation that would make a closure more likely, will drive oil prices higher -- and by extension, gasoline prices.
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I was amazed to see that speculation wasn't even mentioned, let alone wasn't #1. The first and second reason were basically identical, IMHO - bad old Iran.
Here's a brief primer on Oil Futures - home of the speculators.
How are oil futures traded?
"Futures contracts are traded on regulated futures exchanges. Trading can take place through electronic dealing systems, open outcry around a pit or a combination of both.
To trade on an exchange, you need to be a member of that exchange. Exchange members can trade on their own account or they can execute orders for hedgers or speculators.
In the latter case, exchange members are acting as brokers and will collect a fee for their service.
Each futures exchange has a clearing house which ensures that trades are settled in accordance with market rules and that guarantees the performance of the contracts traded."
http://www.telegraph.co.uk/finance/newsbysector/energy/2790647/Oil-price-QandA-What-are-oil-futures-and-how-are-they-traded.html
In the U.S. futures trading is regulated by the Commodities Futures Trading Commission. Here's the link to their homepage. http://www.cftc.gov/index.htm
The most interesting part of the site is the Monthly Trading Report. this is just what it sounds like, and reports on all commodities, from West Texas Crude to hog bellies.
NYMEX WTI Crude Oil futures and options (thereafter combined) open interest increased 3.5 percent in January. Commercial participants, who accounted for 52.5 percent of open interest, held net short positions; their long exposure was decreased by 0.4 percent and their short exposure was increased by 3.3 percent. Non-commercial participants, who accounted for 44.1 percent of open interest, held net long positions. Their long exposure was increased by 7.0 percent and their short exposure was increased by 4.8 percent. Non-reportable participants, who accounted for 3.4 percent of total open interest, held net long positions; their long exposure was increased by 9.4 percent and their short exposure was decreased by 9.1 percent.
There they are, folks: them is what's driving up the price of oil.
http://www.cftc.gov/OCE/WEB/index.htm
market. Shouldn't that affect the price of oil? It would seem that Libya would increase the supply of oil in gratitude for our bombing?
