So gasoline has hit $4.00 per gallon and seems poised to go even higher. Well, la-de-da.
And why do we say that? The law of supply and demand says the current price bump is from the well-known effect of supply and demand. Pardon the tautology for a moment because in this case, much of the demand comes from future-trading speculators who are pushing the price up in hopes that the price will keep going up, a self-fulfilling prophesy.
Futures trading is like signing on for home heating fuel at a price set for the season. If the price goes up, you win. If the price falls, you’ll pay higher than market price for your heating oil. A futures trader promises to pay $X/bbl for the delivery of $Y/bbl in the futures. The more traders who think the price is going up will buy now, that that demand is what is pushing up prices.
It’s an effect that will continue as long as the prices don’t fall. Pardon the tautology, but when prices do start to fall, the speculators will get burned and oil—and the price of everything depends on it—will fall as well. That’s gasoline prices, the prices of plastics made from petroleum, product transported by petroleum fuels.
Can prices really fall? There are people who thought that real estate prices could never come down. Surprise. more