Oil Prices and You

Imagine for a moment; you have a product that everyone wants, needs even. You sell that product for decent profit. Then you realize that every time you stand up and say a few choice words, suddenly people will pay you even more for that product! How wonderful you would say, I'll talk every day!

Iranian President Mahmoud Ahmadinejad seems to have figured this out. Every time he gets on TV to talk, oil prices jump. If only we could see his face when he walks off camera, I would bet that the smile on it is bigger than the Hormuz strait.

Speaking of the Hormuz strait; a large portion of the world's oil passes through there, a place which Ahmadinejad has threatened to block if Iran is attacked. Of course, the media, forever willing to jump into bed with anyone willing to give them something to report, continues to bombard us with the 'fact' that it is the fears of investors, at least in part, which are causing the price of oil to reach absolutely ridiculous prices.

Media chatter and saber rattling aside, let us think about this. Back to the imagination, now, let us suppose that your neighbors also sold the same product. Suddenly though, you decide to put a roadblock up on one of the major roads leading into the neighborhood. How do you think your neighbors are going to react? To put it lightly, they're not going to be too happy with you.

Let's not forget the worker's strike in Brazil, which has affected an astounding 4% of Brazil's minor contribution to the world's oil supply. That's just a drop in the bucket if you'll pardon the pun. Brazil doesn't even rank in the top 15 oil exporting countries. Then, of course, there's Nigeria and threats to the oil infrastructure there. Based on 2005 figures, Nigeria, as a whole, exports 5.6% of the worlds total oil exports.

So, let's recap; According to the media, a good portion of the extreme price of oil (therefore gas) is based upon investor's worries about supply. These fears are based on 1) a war that isn't likely, and even if it did happen, other countries in the area wouldn't stand long for blocking their revenue sources. 2) A threat to a drop in the bucket, and finally 3) a possible threat against another drop in the bucket. Sounds like smoke to me.

Now, the other reason that the prices are going so high, again according to the media, is the fall of the value of the dollar. Put in another way, Greed. Now, that, I can believe. Here's how it works. First, oil trading is based upon the U.S. dollar, why (?) because we made it that way. Let's say that I buy a barrel of oil today for $130. To make it easy we'll even disregard any rise in the actual price of oil, but only concentrate on the change in value of the dollar. So, overnight, the dollar falls in value and I find the next day that my barrel of oil is worth $135, based solely upon a fall in the dollar's value. I've made $5 and haven't done anything. Multiply that times a few billion and you can see why it's lucrative. Because what you're really hoping is that some day in the future, the value of the dollar will come back up, and there you will sit with all of these dollars that are suddenly worth something again.

There you have it, the truth. Greed is what is driving oil prices, that good old American core value. It's not fears of disruption, that's just part of the smoke screen to cover the select few making billions of dollars while the rest of us try to decide between having enough gas to go to work, and feeding the children this week.