by Rich Martin

Created on: June 29, 2008

The basic facts of the matter are that the price of oil is directly related to the international crisis in the marketplace. The dollar is weak and the speculators are taking their money they used to invest in real estate and the stock market. Let's say you are invested in a 401K at work and you see your money dwindling each month since your portfolio is full of real estate and bad stock investments. You run to your broker and tell him to put your money in a "sure thing" that will generate returns for you as an individual. He researches the data and determines that he can invest your money in the oil commodities market. He figures that if he buys low and sells high in a few months, you will gain the profit from his investment and you will remain a customer. Take that thinking to the international market and you will see the same thing happening. Brokers are taking dollars from their investors and gambling that oil will rise to $150-$170 per barrel in September or October. If it falls to $100-120 they will lose big money. So the bidding and hoping that if they buy at $130 today, they can sell it at $150 in two months. The rumors start flying and soon the reality of $150 oil is in the minds of the public and the price goes up. The old days of Economics 101 basic supply and demand do not play as big a factor when you have stock brokers involved. I am not saying that they are totally responsible for the crazy market ups and downs, but merely pointing out the fact that if oil was NOT allowed to be traded or some government controls were installed, the price would plummet to a number that reflected basic supply and demand (probably $70-80 per barrel in real dollars). The real question becomes what can we do to get the $70 barrel price again.

I would propose a two pronged approach to get the market more in line with reality. The most immediate impact would come from the consumer who sends a message to the market by slowing demand and driving less. They are doing this as we speak but it has to be more dramatic than current small declines. The world market (China, India, Russia) are increasing demand globally and this reduces the chance that overall demand will decrease. The second and more dramatic impact would come from a move by the market to investigate the speculators who are inflating the prices to control the market. I don't trust the government to do this properly since their track record is benign at best and usually causes more pain than gain. I believe the Securities and Exchange Commission who oversees the market should investigate the big players who are driving the price first. I believe in free enterprise but not in stock manipulation. Insiders are driving the price by controlling the inventory much like the gold brokers control their price accordingly. Gold is not worth $1200 an ounce any more than gasoline is worth $4.50 per gallon. The true price is probably aroung $2.50 per gallon in the real world, possibly less. Let the market players be aware that they brought this on themselves and should be held accountable. If you took the top five brokers in the country, you would see that they control more oil than Exxon, Shell, and BP combined. The oil companies may be involved in the process also and should also be investigated. The simple fact is that a few people are getting richer and richer as the American public suffers. Nothing new here but it is time to stop the madness. Write to the Securities and Exchange Commission and let's get a movement to stop the inflated prices.

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