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Tuesday, February 28, 2012

Re-post: Oil Barrels, rising gas prices & Why?

This is a reposting from last year.. actually its two repostings in one 'new' post because both are related to the current spike in gas prices that we're all dealing with Again!.  The first part was written on March 8th, 2011 and deal with oil barrels, gasoline and the cost you and I pay vs. the profit margin of those who benefit from higher prices.  

The second part was originally written on April 12, 2011 and addresses how the actions of the Fed, specifically 'Bastard' Ben Bernanke and his policy of devaluing the US dollar has contributed mightily then (and presently) to higher prices for fuel.
From 3/8/11:

1) Lately the price of oil has been rising and you hear things like 'oil is now $107 per barrel'.  So, how many gallons of oil make up a 'barrel'?  Choices are:

A - 32 gallons
B - 42 gallons
C - 50 gallons
D - 56 gallons

Answer found below the pics of cats wearing clothes

Answer: B - 42 gallons of oil in a barrel

2) Now, since vehicles run on gasoline not oil, and the oil must be converted synthetically to make the fuel,  how any gallons of gasoline does 1 barrel of oil make?

A - 55
B - 62
C - 77
D - 119

Answer:  D - 119 gallons of gasoline are created from 1 barrel of oil

In simple math, if a barrel of oil is $107, then per gal, its 89.9 cents/gallon

"89.9 cents?!" you ask..  "Why am I paying $3.49+ at pump?!!"

Good question- Simple answer-- oil companies are Evil and they make sure they profit at every step of the oil to gasoline conversion process and the transportation from source of oil to the local gas pump. Investors and speculators are equally evil because their investment in the commodity drives up the price, but we'll address that in more detail in a future post...

Normally that would make the gasoline cost you about $2.70/gal  (profit of about $1.90/gal to oil company). BUT you then have to add another 50-80 cents/gallon to cover all the federal, state, county and city taxes..  And that 89.9 cent gallon of gas is now $3.49 (or $3.79 for Premium)
From 4/12/11:

There are two specific factors causing the rising cost of gasoline-

1)  Federal Reserve's devaluing of the dollar,  and..

2)  Greedy, soulless commodities traders/investors.

Let's expand on these points a moment...

It has been stated repeatedly in this site that the Federal Reserve is intentionally devaluing (or weakening) the US dollar as a trading currency.   This is is done so that American business can export their goods abroad and make a larger profit.  The expansion of the US economy is Not based on the US consumer- he/she is tapped out; high debts, no credit, no jobs..  So US businesses need a weak dollar so other currencies, when strengthened, pay out a higher conversion rate.

To be clear, all nations are doing this, not just the US.  There is a current race amongst all nations to see who can devalue their currency the quickest.  It is ironic for instance that the US accuses China of currency manipulation when they themselves do the same thing.

And I state this often because it is very important to understand... it doesn't matter if it is the US Dollar, Japanese Yen or British Pound-- when a currency is devalued, it means it costs more to acquire the same goods/services as it did previously.

Now oil/petrol- the sale and value of the product, even amongst OPEC, is based on US dollars.  It holds a certain value in relation to $1 and as that dollar is weakened, it takes more of those  pieces of paper to match the amount of oil once purchased with only $1.  So as the Fed is weakening the dollar via Quantitative Easing 1 & 2, to the tune of $2.5 Billion/day and excessive money printing, they are directly causing the price of oil to spike.

Those who sell us our oil are not going to lose monetary 'value' just because we are de-valuing our currency to help corporations export and to pay back our creditors with less...

Now let's look a moment on the commodities trader/investor.  When gasoline is traded on the market floor, it is termed as  "Brent Crude".  Now as of this posting, the futures trading shows a Barrel of oil at $123.05.  A commodities investor looks at oil and trades exactly as it would, say Pepsi or Coca-Cola on the stock exchange.  It is an emotional science, often attached to panic buying and selling. The more they think it will rise, the more money that is put into the commodity which raises the price. And from there, those increased priced are immediately transferred onto the consumer.

So the fear/excitement of investors and devaluing of the dollar are the two major contributing factors to the increased rise in the price of gas.