Professional, Polite, Prepared to Kill

A Big Oily Mess Part I: Understanding High Fuel Prices

Tom Ordeman, Jr

Author’s Note: Given that oil prices hit record highs again this week, I thought it might be helpful to provide FSM readers with some facts, free of polemic or agenda, about the reasons for rising fuel prices in America. This is a revision of an article originally written in 2005, broken into three parts. In the first installment, I’ll review some of the reasons for the quick price increase over the last several years. The second installment will deal with proposed solutions that won’t solve the problem, and why. The final installment will offer some suggestions for decreasing and stabilizing fuel prices. My review of Chechnya will resume once this series has been completed.

While most Americans are anxious about rising fuel costs, and all Americans are impacted by the increased price for oil, the reasons for the quick rise in the price of a barrel of crude since 2004 are many and complicated.

One of the most pressing factors in the oil crisis is that oil is traded on U.S. currency. What’s this mean? That it’s bought and sold on a dollar rate, as opposed to pounds sterling, euros, or yen. When the dollar declines in value, as it has declined in value over the last several years, it takes more dollars to buy a barrel of oil, and that translates into higher prices at the pump. The declining value of the dollar, based on factors ranging from deficit spending to increased entitlement payouts to the chaotic stock market, means that Americans have been hit harder by the increased price of oil relative to other countries that have enjoyed steady currency values

This is further complicated by the recent slowing of American economic growth, which has compelled oil speculators to invest in oil futures as a “sure thing.” The result of this set of controls is that the actual American demand for oil is perceived as disproportionately drastic by Americans. More from Family Security Matters


April 22, 2008 - Posted by | economy, trucking | ,

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