The QiRanger Adventures

Cyclical…

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A lot of people like to talk about the price of gasoline and how they’re being ripped off at the pump. That there isn’t a reason for the escalating price of oil or price we pay at the pump. I tend to disagree. While there are several factors that come into play in what takes place on the world market stage, some things are certain. One of those things is how the United States economy is functioning.

Currently, the US Economy is either in a Recession, nearing one, or barely scraping by (and thus avoiding it all together). The sad state of affairs is that no one really knows and by the time we do know, it’s 6 months into a Recession. But what is known without a doubt, is that the economic engine of the United States is slowing. It’s been happening for well over a year and is shown by the decreasing power of the Dollar. In fact, during the past year alone, the Dollar has seen a 10% decrease in its purchasing power. Other currencies are gaining strength and more and more countries are ether trading in Euros are thinking of doing so. But does a weaker Dollar account for the increase in oil? To some extent yet.

Crude oil prices have increased 85% in the past year. But if the Dollar only has lost 10% of its value, shouldn’t the cost of oil only have gone up 10%? No. There are other factors in play, but what are they?

Many turn to supply and demand – the old notion supply can’t keep up with an ever increasing demand and will therefore increase price. It’s a sad fact, but the world really has no way to accurately measure demand. Sure supply can be accounted for via OPEC, but demand is a huge black cloud. Analysts best guesses are that worldwide demand really hasn’t changed that much over the past year to warrant an 85% increase in crude oil prices. So what has?

The answer seems to fall in the Speculative Market. In the past, there were tons of investment opportunities that would have returned on one’s investments. However, with the weakened US Economy, the number of options have dwindled and most are throwing their financial investments behind oil because it’s something that the world needs and won’t be getting rid of anytime soon. As more and more people invest in this speculative market, it drives the price of crude oil higher. The higher the price of oil, the higher the cost of business and it weakens the US Economy. As the US Economy weakens, the Dollar falls.

Thus the rising cost of oil is cyclical. What needs to take place is a jump start to the US Economy. However, none of the candidates or the Administration has a credible plan to do so. The lending fiasco will only further dampen our economy. Hopefully someone will have a good idea how to pull us out of this… I don’t.

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Written by Steve Miller

May 1, 2008 at 4:00 am

Posted in Thoughts

Tagged with , , ,

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