Sunday, April 10, 2011

What's going on with the gas prices?

So in with this month's propane bill and statement was a three fold brochure explaining a few things.  Maybe you already know this but I sure didn't.

Dear Customer,
Like you, we are very concerned about rising fuel prices.  When prices go up, some customers think we make more money.  In fact, it just increased our costs and makes it harder for our customers to pay their bills.

The fundamentals of supply and demand normally drive prices.  But there are other forces at work keeping prices higher than they should be.  It's important that you know what's happening and what we can do about it together.  Because nothing would make us happier than to see prices drop.
In the last 3 months of 2010 crude oil prices increased by more than 18%.  You have seen that increase reflected in prices for gasoline, heating oil, propane, diesel fuel and other energy costs.  But why are crude prices rising when:

A - Supply is strong -- Crude oil inventories are above their 5-year averages.  Strong supply typically means lower oil prices.

B - Demand is weak -- Demand is only up 1% from last year's weak economic numbers and the economy is still struggling.   Weak demand typically means lower oil prices.

C - The US Dollar, while still weak, has strengthened against other currencies during the same time period.  A stronger dollar typically means lower oil prices.

It doesn't add up.
All the fundamentals say that prices should be lower.  But in this equation, "one plus one" does not equal two.  

The reason?  For starters, the excessive speculation by huge banks and hedge funds, who can make giant profits by driving up the price of oil and increasing price swings.  They do this by exploiting loopholes in the way that crude oil trades are regulated.
It is estimated that as much as 20 times more crude oil is traded every day than is actually consumed worldwide.

What We Need To Do
Last year new legislation was passed that would make it harder for excessive speculation to occur.  BUT the regulations enforcing the new law are still being fought over.

Wall Street is doing everything it can to water them down. 

 You can keep pressure on the government by:
1- Writing your senators and congresspeople and urging them to keep the energy speculation loophole closed.  Visit to find your reps.

2- Contacting the Commodity Futures Trading Commission (CFTC) and urging them to do the same.  Visit  or you can call them at 202-418-5000.

Over the long run, energy prices will also be helped by increasing domestic production, improving conservation and strengthening the US Dollar.   But together, we can work on the problem of speculation right now.

If we don't stand up and be counted soon, this may happen:

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