Everyone knows that gasoline is considered a commodity whose price is determined by the vagaries of free market (aka demand and supply). At least every one is told so.
And yet all of us have been feeling the pain of the rising gas prices over the last 3 months, as prices have gushed from ~$3.00/gal to $4.35/gal. I have even switched over to biking to work twice a week just to “stick it up to the man”. Yes, there is a instability premium due to the middle east revolution/unrest. The obvious question is how much is this “premium”? I would say that the unrest in Yemen and Syria while barbaric, should not affect the crude price. Lets look at the top 15 producers of Oil. (I am not looking at top exporters of crude oil to the US, because the prices are obviously a global number). From the CIA website
Oil Producers, CIA facts 2011
None of these places have had their oil production disrupted by the recent unrest. Right?
So the almost $30/bal ($110 vs. $80) premium we are paying seems a bit unreasonable. Now look at what happened this Thursday. Oil prices plummeted by a whopping ~8% in one single day. Yes, this is a commodity we are talking about. Did the demand drop by a astounding 8%? or did they find a giant pool of oil? neither did all the problems in the Middle East get solved. Nothing.
Oil Prices, 5th May, 2011
My take is that there is a lot of money sloshing around and people are speculating with Oil futures and prices, unfortunately you and I have to bear the cost of all this. Still there is one way to stick it to the oil Co, carpool, bike, walk and let us all use less OIL…