Part of becoming an informed driver and citizen is understanding what makes the world around us tick. A key part of that understanding right now is discovering what makes oil prices and oil companies tick. It’s no secret that oil companies often receive special treatment from governments and that they have played a role in blocking key pieces of technology and science from the electric car to global warming concerns. But what makes oil companies tick and why are the oil companies receiving record profits if it’s just the crude, dude?
Obviously prices of commodities have soared internationally. In the past few years, the American financial sector has invested significantly in commodities markets, turning their attention from stocks and currency investments. According to The Economist, about $260 billion has been invested into the commodity market. That’s up nearly 20 times from what it was in 2003.
Couple this new interest in commodities with an American dollar that is sinking like a stone and you’ve got commodities prices that are jetting through the roof.
Most of the investments in commodities are placed like bets by investors looking for high-risk and high-yield investments, making big money from the rising costs of the commodities. Adding to that perfect storm of a falling American dollar and a rise in commodities prices, as well as the fact that the margin requirements for commodities stocks are around 5-7% (most markets have a margin requirement of around 50%), and you’ve got investors in commodities turning their initial investment of $260 billion into positions of around $5 trillion in futures commodities markets.
That’s quite a profit for investors in commodities! Somebody’s making money off of the rising costs at the pump and it sure isn’t you.
With such a huge amount of profits in commodities and such enormous profits going to the upper class investors, it’s important to note that many investors and companies with investments in commodities are indeed profiting, big time, from the rise in oil costs. But how are those oil costs put together? And what can you do about it?
The first question is a mouthful and will be explored next time, but the second question contains some more practicality.
For starters, drive less. Don’t be a slave to oil. Choose a car renowned for its excellent mileage, like the Toyota Scion. Using a car like the Scion will help convert your gas budget into a longer travel time on the road and will decrease the vice grip that oil companies will have on you at the pump. Finally, inform yourself about oil companies and commodities profiteers. Find out who’s fattening the calf while the rest of us are struggling to drive to the store for milk.
Let me start off this post by apologizing. I know everybody is probably tired of hearing about the price of gas. We all know it’s going up with no end in sight. But it’s difficult to find anything else to report about these days since the auto market is dominated by gas. So every day this week, I’ll be posting about gas and oil. I will, however, try to make it interesting and informative. Sound good?