Ahh Memorial Day was fun huh? We can always tell it’s here without looking at the calendar by simply driving by the nearest gas station. Is it 25% higher than it was a month ago? If the answer is yes than we’re in the season of flowers, bugs, and college commencement speeches. The capstone of May is Memorial Day and with it the increase in gas prices for the summer.
Since December of last year we have enjoyed gas prices that on a national level neared $1.60 a gallon. Here in the south I personally enjoyed lower than $1.50.
But now the national average is passing $2.50 and will likely go higher as the price of oil nears $70 a barrel (as of June 3), still a far cry from that $147 bubble we had last year. Seasonal increases are to be expected, but the average for the summer was supposed to only be $2.30. We’re already past that so I suspect something else is going on here.
So what’s the dillyo? All the normal factors seem to be in place for prices to remain low. Inventories of oil are at the highest levels in years, so high that the world could run out of storage in a month. Demand is way down thanks to conservative drivers and the unemployed lacking a destination to commute to. OPEC is keeping their rates of production fixed, so they have no need to increase or decrease the price. They’re content to let “the market” set the price.
This can only mean one thing. Say it with me now “B-I-G O-I-L C-O-N-S-P-I-R-A-C-Y.” No not that. Speculators. Oh I’m sorry they don’t like that term. They’d prefer to be called investors. If you want to invest in oil buy an oil stock. Unless you’re actually taking delivery of a commodity you purchased, you’re a speculator. And after a 6 month break you’re back in the oil game.
Where did they go? Regulation scared everyone away last year which popped the oil bubble. But it was not made illegal to invest in oil futures and those boys are back. While in hiding, many institutional investors really enjoy keeping their money in US treasuries or cash. Back in the early spring we saw many people getting back into the stock market game, igniting the fire under CNBC to once again be optimistic. This optimism has lead to speculation that the worst is over. Economic recovery entails increased demand for oil, meaning speculators want to get in on the ground floor, which is what they’ve been doing since the beginning of April.
This new demand for oil futures has increased the cost of oil for everyone, meaning the price of gas has once again started a climb. But don’t worry, forecasters at the U.S. Energy Information Administration predict oil will only increase to $110 by 2015, six years from now. So this leaves me to be fairly confident we’ll touch $150 sometime in the next 12 months. Raise your hand if you love speculators!