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The Manipulation of Oil Prices and What Can Be Done!

Jun 22, 2008
Oil prices are reaching $150 per barrel with no end in sight. Why is this occurring, and who is responsible. In response, many are considering alternative fuel sources, including Water.

The consumption of gasoline in the USA is dropping as prices skyrocket. And yet gasoline prices continue to rise. Why?

In an efficient market, the forces of Supply and Demand would lead to equilibrium rather quickly. Let's take a look at the market to see if we can determine who controls oil prices.

What are the factors affecting the Supply side? The disparity between the growth in new sources of oil and oil production has been on the rise since 1980. That was the year when production outpaced the discovery of new oil resources, and we realized that oil supplies are finite. Until equilibrium in the global marketplace is reached, economists predict that oil prices will continue to rise. And the violence in the Middle East and the instability in West Africa have led to lowered oil exports.

On the Demand side, the most significant factor affecting oil prices has been the increasing demand worldwide by emerging industrial countries: India and China, specifically. These two countries are becoming huge oil consumers as rapid urbanization, growing industries, and higher living standards dramatically increase energy usage. China has seen a doubling of oil consumption over the last 10 years, and expects another doubling in less than a decade, as oil consumption has been increasing by 8% per year since 2002.

Transportation accounts the largest share of oil consumption, reflecting the growing rate of vehicle ownership. China and India are experiencing rapid growth in vehicle ownership which now accounts for 75% of total oil consumption. This compares to the USA at 70% consumption by vehicles.

Demand is also affected by world population growth, which is another cause for rising oil prices. Oil production per capita peaked in 1979 and has been on the decline since. By 2030, it is expected that world population will be double that of 1980 levels.

So, who controls gas prices? Perhaps OPEC by controlling exports. Or the large integrated oil companies like Exxon Mobile and ConocoPhillips who are making record profits. Or even the companies in the distribution chain: the refiners and gas station owners.

Who controls gas prices? Many would respond that it is the large integrated oil companies. Why? Because the oil companies sell their oil to the highest bidder, and then repurchase the oil from the lowest cost supplier.

Who controls gas prices today is predominantly the Institutional Investors. Hedge fund manager Michael Masters testified before Congress in May of 2008 about his belief that "What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors...". While the press generally cites the increase in demand over the last five years from China for the rise in prices, it fails to mention that the during this same five year period Index Speculators' demand for petroleum futures has increased nearly equal to China.

Abdullah al-Badri, OPEC's Secretary General, indicated that there is rampant speculation in the spot market for oil. He provided data that the 'paper market' for oil is 15 times larger at 1.36 billion barrels per day compared to the 87 million barrels per day of worldwide consumption.

Most of the oil market is not regulated, enabling the Institutional Investor to manipulate the spot price of oil. This allows them to control the price.

What can be done about this? Congress could investigate and pass legislation to ban the manipulation of the spot price of oil by the Institutional Investor. The SEC Chairman could more aggressively apply existing laws to stop the manipulation. Or we could act directly to reduce our consumption of gas in our vehicles today.

The automakers will be introducing high mileage vehicles in the near future. GM has announced its Chevy Volt, an EV (electric) for 2010 with a small engine for recharging the batteries. The Volt is expected to average over 150 mpg.

There is also the Hydrogen Fuel Cell car, which is at least a decade away (I don't hold much promise for this design).

And, there is the current Hybrid car which augments the engine with electric motors. By 2010, advances in battery technology will enable the car to run on electric power only for up to 40 miles before the gasoline engine kicks in. They will also be pluggable, which means that the batteries can be recharged from an ordinary a/c outlet.

However, there is something we can do today to dramatically increase gas mileage (up to 50%) with existing technology. It is inexpensive and easy to install on our vehicles. It is not harmful to the engine and will reduce emissions.

Like the Hybrid car, this system relies on capturing wasted energy and reapplying it as needed to improve gas mileage. Wasted energy occurs when the vehicle is at a standstill or coasting down a hill, and the engine is not contributing to moving the vehicle forward. Unlike the Hybrid car which stores wasted energy in batteries, this technology stores the energy by converting water to a highly combustible gas called oxyhydrogen (HHO). It is like running your car on Water.
About the Author
Stop the relentless rising price of gas. A simple inexpensive system will show HOW TO RUN YOUR CAR ON WATER
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