Maybe Ron Paul Was Right

Good question. I thought about that myself. I think an easy case can be made for THAT difference in pricing being attributed to demand. While it was only a short time ago that oil was in the 20's, I don't think we'll ever see that again, short of a brand new discovery. We could have "printed" zero more new Dollars since oil was priced in the 20's, and the price would still have risen. But demand just does not account for the entire rise.

Gasoline should probably cost more like $1.50 to $1.75 per gal.

There are three main drivers behind the insane run up in oil prices in dollars since it's low around $18. Demand, falling dollar, and speculative pressure, the BIGGEST being the latter. Oil is something I actually know a great deal about, being the primary business of my family (not me, though). The REAL price of oil, that determined solely by demand should have been around $35 back when it was running around $20. Today, taking all other influences out, the price is roughly $45-50. About $20 or so is due to the falling dollar. but the rest, roughly $60 is nothing more than rabid, out-of-control speculation very similar, in many ways to real estate in places like the Bay Area in California and .com stocks of the late 90's. Get the speculators largely out of the market and the dollar recovered at least somewhat, and oil will crash back into 70's almost overnight and according to some Wall St firms may panic in the opposite direction for a while, to the 40';s....
 
You might have a point. Speculation is fueled by insecurity, but speculation is usually not irrational. And nothing fuels insecurity like war and rumors of wars in the middle east. So let's imagine that the war never happened.

Right before the war, gas was $1.65 or so a gallon here. If it fell from $120/barrel to $60/barrel, can we assume that the price per gallon would be cut in half as well? That would take us from $3.60 down to $1.80. Which is what we would have expected without war, but with the other non-war factors--chinese demand, inflation, ethanol requirements, lack of new discoveries, etc.
 
You might have a point. Speculation is fueled by insecurity, but speculation is usually not irrational. And nothing fuels insecurity like war and rumors of wars in the middle east. So let's imagine that the war never happened.

Right before the war, gas was $1.65 or so a gallon here. If it fell from $120/barrel to $60/barrel, can we assume that the price per gallon would be cut in half as well? That would take us from $3.60 down to $1.80. Which is what we would have expected without war, but with the other non-war factors--chinese demand, inflation, ethanol requirements, lack of new discoveries, etc.

Refined gasoline trades on a separate contract from crude oil. While crude oil is a major component of the price of a refined gallon of gasoline, the two contracts often fluctuate independently and are far from lock step. Things that affect refining do not affect crude and vis-versa....
 
Give me one good reason why investors SHOULDN'T be speculating in oil contracts. No end to war in the ME in sight, tensions with Iran, threatening expanded war over there. Inflation ramping up, China and India increasing demand, "peak oil", etc..

It's gonna take a miracle to pop this energy bubble anytime soon.
 

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