Petebass said:
Thank-you for giving it some thought. To some degree you're correct.
I focused on the currency aspect the most in an effort to explain it simply - in the past people have said some of those examples like about the basses helped them understand - and because I know that in the US people are not commonly made aware, say at the top of the news hour like we might be told in Canada or Australia that (in our case) the dollar is at a 25-year high or (in the case of the US) a 5-year-low representing a whopping 40% drop during that time.
That's only part of the reason for the nominal increase in gas, and while our money has gone up comapared to the US dollar the price of oil has gone up higher and ultimately oil is traded on the "spot / futures market" so it goes up for everyone. In Canada we alternate with Mexico as the single country biggest exporters of oil to the US, but the price goes up for us too because everyone pays for it on the futures market, our oil producers don't just say "well, we'll sell for less domestically just to be good to our countrymen even if we lose big on the deal" since ultimately they owe their shareholders first and foremost (and it'd probably violate the free trade pacts we have with the US).
Some countries have started to dictate where their oil goes (see Chavez vs. Bush) or repatriate some of their oil fields or uranium reserves, and I think you'll increasingly see that kind of action vs. "free market". "Energy Security" will come first, and as I said some countries are already hip to that but in the West we're slow to grasp the concept as it has only very recently become a buzzword despite it being talked about here and many places besides for a heck of a lot longer, even decades Sad, no? Why was this not a main issue last election ... in any of our countries?
But back on topic, part of our gas price increases, say in Canada and Australia, are due to the large amount of taxes on gas. In the States it's only something like 15-20%. Here, it may be as high as 40%-60% so while in the States if gas goes up $1.20 we know that's 20% tax, if it goes up $1.20 here it seems like the same increase (despite the currency advantage as you mentioned) but in fact it may have only gone up 70c and the rest of the $1.20 is the tax difference, but at the pump it looks like the same $1.20 increase while in fact the price that is actually gas not tax went up much more, in this example a whopping 42% more, in the States.
In Canada, Europe, I think Australia too, the high taxes are put to good use for the most part and the idea behind them is "hey, if a litre of gas normally costs 50c let's say we charge 50% in Federal and Provincial taxes to make it a total of 75c per litre and that extra 25c per litre will give us enough for roads maintenance, health care, and still leave millions to embezzle and kick back to our cronies." But when the price of gas skyrockets to maybe $2 now that tax is suddenly yielding them $1 per litre so we need to pressure gov't to make the tax a flat levy per litre or at least lower the percentage so that the prices at the pump are lowered. It is a public issue here, have you heard talk of this in Australia or have our European TBers heard this type of talk? - please let me know.
My point here, and like the currency example this is only a small part of the bigger picture, is that while prices may seem to go up similarly in Canada and Australia as in the US, despite our much stronger currencies (in the past 5 years) much of our increases is taxes whereas the bulk of the rise in the States is real cost of gas.
I don't think it's the political situation - at least not in the past - but it will be going forward as countries buy up foreign oil fields and oil suplies (and uranium) and perhaps out of spite (Chavez) or some war issue other countries hold back production.
Believe it or not, in the past *including during the oil crisis of the 70's* OPEC saved our asses in the West by releasing millions of extra barrels a day to keep prices down even though they were PO'd at Truman in the US over Isreal issues. This cost OPEC not only huge profits but also severely damaged their prime oil fields due to this overproduction which massively curtails the longevity and overall future production of those fields.
This is historical fact, known to most in the oil biz, and not my opinion. You can read more about it at the link at bottom.
Nope, they're just lucky (along with their shareholders! - and anyone can own these companies any day you want!) beneficiaries of the turmoil. When there are supply disruptions or speculation of increased future demand, etc. the speculators run the price up on the spot/futures market and eventually that filters to the refineries, to the delivery drivers who truck the gas to your station, and finally as a price increase at the pump. At the same time the cost of recovering the earth's dwindling oil supplies is increasing very dramatically, but of course for now the oil companies are coming out ahead.
On Talkbass I have recommended the stocks I linked on the last page - Suncor and Sassol - since they were at about 1/3 tto 1/2 their current prices so that's a double/triple. And many others that have done as well or better the past couple years. The thing is, not close to "everyone" has bought in, and yes if people buy after you it could drive the price of your shares up. Good ! Even if everyone did buy in and the price ceased to go up, you'll still reap increased dividends from those shares due to the increased profits due to the increased prices we're all paying for oil/gas.
$5 for a pint of beer is a lot if you are just a customer, but if you own the pub and it's mostly going back into your pockets then it's not so bad eh? Same concept.
Your post is excellent and I am a big supporter of debate along any other lines than "damn OPEC" or "we're all victims". I'm glad to answer to or explain/defend any position I take. If I am proven wrong, I will thank you profusely because I need to know since I have real money behind my words and it can pay off as well for anyone as it does for me (that's partly why I bother to type all this, as a sort-of constant self-check I do). It doesn't take any more than the cost of a new bass and rig to get into the markets, and in some cases much less.
For example, I started a sample portfolio almost 3 months ago (almost all energy based shares mostly trading under $1) that cost only $1000 Canadian to get into in a thread titled "Beginning Investing" - less than a new MIA Fender. So far, the sample portfolio is "diversified" into 10 different stocks and currently up almost 60% in under 3 months. So, if someone had put $10000 into it they'd be up about $6000 since then. That's a lot of gasoline, or money for G.A.S. if you prefer. I will be updating that thread going forward, so if anyone cares to have a discourse on that topic please participate there. Best of all, several TBers are smart about investing and they can and do provide differing views as my approach is not for everyone.
Anyway, that's the "hedging" I spoke of earlier (past page), and if oil keeps rising you'll make it back on your shares going up. If oil tanks you'll save at the pump but lose it on the shares, but at least you've effectively "hedged" and locked in today's prices and if gas triples tomorrow you and your family will be fine.
It's the same idea as locking in the interest rate on a long-term mortgage, which I think everyone understands. In that case you're saying "hey I think interest rates can only go up and if they do I'll lose my home and I can't afford that so I'll lock it in and know what the cost will be". People do it because a home is important and I suggest they need to do it with other important things such as their travel (freedom?) costs, perhaps water someday as it becomes more scarce, electricity maybe, etc.
That is how the futures contracts work, and that's what some businesses and governments do to ensure they'll know their costs going forward no matter what the "free market" does. All I am saying is that anyone can do it. Why they don't teach this in school rather than crap like dissecting fetal pigs is beyond me - just proof of what a waste the public curriculum is IMO, but of course I digress.
And for those who do want a conspiracy theory - the oil president gets elected and oil prices start rising incessantly since that day. Obvious? Who bet accordingly? It's never too late to act on your impulses, however crazy they might seem.
I am not saying "listen to me I am right", but am saying let's elevate the discourse and let's consider other causes and options and be proactive. Everyone seems sure it'll continue, but who is doing anything about it? This is obviously a serious thing that affects many, and hits hard on some people's budgets, costs of operating their business, and ability to move freely (or affordably). It's up there with food and lodging. Serious stuff. IMO.
I know to some I must come off as a crank or obnoxious know-it-all, but I can't be bothered to soften my tone to appear more moderate or likeable while the message gets lost, but really I'm going for empowerment here and encouraging people to think a bit beyond the most simple scapegoats and news blurbs. I wouldn't be advocating this stuff if I didn't know first-hand it can be done. Some can offer car advice if they're mechanics, some can offer musical theory advice if they're music school grads, and some can offer economic and investing advice. That's my expertise and I'm trying to share. Ultimately of course people have to think for themselves and make their own decisions.
Other major reasons for global price increases include the future scarcity of oil vs. booming demand (China, India), hoarding by some governments (China, members of OPEC since Saudi Arabia is a net *importer* of natural gas if you can believe it!), etc. This can explain it very well - http://www.twilightinthedesert.com/ It's all documented with OPEC and the major oil companies' own documents. It's no doomsday theory, it's simple sense. The oil party is crashing to a halt at some point this century, no one is sure exactly when, and those in the know are starting to panic. That drives prices higher, and we've only just begun. Last year I wrote that soon $3 a gallon would seem like a wonderful fairy tale. This year I'll say the same thing about $4 and even $5 a gallon. And I'll quote that when it's $6 or $7.
If you don't believe me, surely you'll believe Tower of Power?
http://www.lyricsdownload.com/tower-of-power-there-s-only-so-much-oil-on-the-ground-lyrics.html
"There's only so much oil in the ground
Sooner or later there won't be none around
Alternate sources of power must be found
Cause there's only so much oil in the ground
There's only so much oil in the earth
It's a fact of life - for what it's worth
Something every little boy and girl should know since birth
That there's only so much oil in the ground
There's no excuse for our abuse
No excuse for our abuse
We just assume that we will not
Exceed the oil supply
But soon enough the world will watch the wells run dry."
