Gas Prices-WTF?

[Minute]

So I've been reading so much shit on gas prices that my head is about to spin. Lots of finger pointing, but I still don't have much that's solid. Anyone care to take a shot at a real explanation? What I want to know is why gas prices went through the god damned roof & somehow are now magically dropping at insane rates & is there going to be a gynormous bounce back up? And please, answer all 3 questions. Layman's terms would be appreciated.

[Embar Angylwrath]

So I've been reading so much shit on gas prices that my head is about to spin. Lots of finger pointing, but I still don't have much that's solid. Anyone care to take a shot at a real explanation? What I want to know is why gas prices went through the god damned roof & somehow are now magically dropping at insane rates & is there going to be a gynormous bounce back up? And please, answer all 3 questions. Layman's terms would be appreciated.

1. Speculators entering the market and competing for oil futures thereby driving up the commodity price of oil futures.
2. Speculators leaving the market and selling off oil futures.
3. Speculators re-entering the market when the economy stabilizes, and they get a handle on true supply/demand ratios.

Oil markets are driven by hedges and speculators. Oil is a commodity, like oranges, wheat, corn, etc. Hedges and speculators buy futures contracts for the purchase of the commodity based on what that particular hedge or speculator thinks the market will support at some time in the future (3 months, 6 months, year, etc). If something in the macroeconomic climate changes, and the speculator decides that futures will be worth more, they buy more. If they decide futures will be worth less, they unload.

Right now, consumers were recently faced with $5 dollar gas prices, and they made adjustments. Speculators thought that gas was non-elastic, that is, the market couldn't easily adjust to price increases, and the market would be forced to pay whatever the rate was for gas (which is linked to the price of oil). This turned out to not be the case. Consumers made lifestyle choices. They bought more fuel efficient cars. They were more efficient in trip planning, and used less fuel. This drove down the demand for gas, and by relation the cost of gas, and therefore the cost of oil.

[Ddrak]

A lot of the issues stem from the Fed's policy of keeping interest and inflation very low. With bonds paying almost nothing, investors start looking for other places to invest. Housing was a big thing a few years ago, then investors started getting scared and moved to gas. At some point they saw (as Embar noted) that gas sales were dropping off and the price increase wasn't sustainable so they collectively jumped elsewhere (I think a lot went to cash-under-mattresses, or bonds) so the demand fell just like the housing market fell.

As long as bonds and interest are at almost-zero return, you'll find speculation in markets and a lot wilder ride in stocks/commodities.

Dd

[Freecare Spiritwise]

When gas was $5 a gallon my Suburban was something like $165 to fill up. The motorhome (which we sold) was like $300 to fill up. I got the wife a little Honda Fit and we pretty much left the truck in the driveway for a year. I wasn't sure I'd like the Fit if gas ever came down, but with gas $1.70 here in Spokane it's almost free to drive and it's not even a hybrid. Seems like it gets better gas mileage than the motorcycles I used to drive.

So there's your answer, supply and demand. When gas hits $5 people say fuck it, let's stay home tonight. High prices didn't just weaken demand, it killed it. And now that everyone is either driving a prius, a fit or a yaris, the demand isn't coming back. And now that the economy sucks so bad, nobody is out taking a lot of road trips even at $2 a gallon.

I thought about selling the Suburban (it only has 20k miles) but they're giving away the new ones. Yeah baby, 10 cup holders.

[Klast Brell]

My car has an 11 gallon tank. It used to cost me almost $40 to fill up. Tuesday I filled up for $19. My jaw dropped when I saw that price. I kept looking at the pump trying to figure out if i made a mistake.

[Minute]

Are there not any kind of regulations on gas? Seems to me that something as necessary as gasoline should have some oversight? Or is that a bad idea?

[Ddrak]

It's hard to regulate when a lot of supply and demand on oil is international. A regulatory system would have no control over what OPEC does, for example, so you're just setting yourself up for either government mandated company profits (when OPEC sells low and the regulation is high) or government mandated company losses (in the opposite situation).

I'm pretty sure the WTO would crush any idea of significant oil regulation into dirt as well.

Dd

[Klast Brell]

Oil/gas companies have enough money to make sure oversight legislation does not happen.

[Kulaf]

You can't regulate global gas prices. At least not to everyones satisfaction.

[Embar Angylwrath]

The only way to stabilize gas prices is to have a floating tax at the pump. Even then, the tax can only be cut so much. I should probably add the caveat that I think what Minute is asking for is "stabilization of gas prices", not so much "regulation of gas prices".

[Garrdor]

Fuckin' rad.

I can now get my dream truck (Dodge Ram 1500 2WD). 12 Miles/Gallon on the freeway!!!!

WOOHOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO!!!! Now my mom doesn't have to sell her 2000 GM suburban!!!!!!!!!!!!!!!!!

THINGS WILL BE ALRIGHT GUISE. DUN WORRY!

[Freecare Spiritwise]

Fuck yea!

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[Ariannda Kusanagi]

I drive a Durango, I don't have the money or the credit to get another vehicle and my gas mileage is dying right now, however I'm willing to do more due to the gas prices. When it takes me 20 bucks to take the kids up to my ex instead of 50 bucks then i'm willing to take the extra money and go spend the weekend with a girlfriend instead. I'd rather have something more efficient, but it has to seat 7 which takes out pretty much .. anything