Friday is date night for Tammy and I. We try to do something special together, just the two of us. We usually go out to a nice dinner, then catch a movie or go shopping. Now, before you start calling me mean names for doing such girly stuff, let me tell you what we did last Friday. We went to the dirt track!

I love my wife so much. She is anything but girly. She loves to go rock climbing and when we snuggle on the couch on Sunday afternoon, it always involves watching NASCAR or football, depending on the season.

I have a little history with dirt track racing. I raced thunder bombers one summer back in college. Please, check out this article in which I wax nostalgic about those days of dirt and steel.

Going to the track is a great sociological experience. You ain’t seen no red neck ’til you been down to the races on Friday night. Now, don’t get me wrong. I have plenty of respect for the working class and I’m a Texan through and through, but if you like people watching as much as I do, then there’s nothing better than seeing Granny whoop and holler for her boy in the 15 car. She most likely will have nacho cheese running down her chin or, if your really fortunate, it’ll be Copenhagen instead.

There is a gas station by the highway where I live. I’m sure you have a similar one in your neighborhood. It’s the gas station that no one ever goes to because the prices are ridiculously high, sometimes nine cents a gallon more than the station just up the road. That gas station, this weekend, posted a price of $2.69 a gallon for regular unleaded (87 octane). Great googly moogly! What is going on here.

I remember the big price scare after 9/11/01. The economy was tanking fast and everyone thought that the rag heads were going to turn off the taps and starve the U.S. of oil. Gas shot up from around $1.15 up to $1.85 in Colorado Springs (as I remember it). I made a pact with myself, that I would not buy gas for more that $1.80, and I pulled it off. I only had to ride my bicycle a couple of times and I managed to hold out until gas came back down. It only took about a week for folks to realize that the oil wasn’t going anywhere and that there was no need to stock pile the stuff.

So, what the heck is going on now? The war in Iraq? Nope. Oil has been flowing freely from Iraq for over a year now. Besides, Iraq isn’t that big of a supplier on the global scale. Terror threats? C’mon, how many times can we cry out for that wolf? The news occasionally blames labor strikes here or there. Rubbish! Even if one entire refining company stopped producing, the others would just step in and make all that money for themselves.

Okay, well, then it must be simple economics, supply and demand, right? That’s what I thought until today. I’d heard that Asian countries were growing fast economically, and that they were starting to buy more cars and drink oil as fast as they could ship it in. That may be true, but that’s no why oil is over $65 a barrel. You may say, “It’s the economy, stupid!” to which I would replay, “Hey, that’s not very nice, and besides, it’s wrong, stupid.”

I submit the following news blurbs:
From rfcnet.org, a Washington based lobby group:

“The economy is continuing to grow, but not as fast as the cost of gasoline. Consumer confidence is down because people are spending money on gasoline they would rather spend on everything from better steaks to new furniture … Oil experts say that the fundamentals indicate the price of oil should be at $38 to $40 a barrel, yet oil futures are trading in the mid $60 range … There is so much oil the refineries can’t even keep up with it and we are running out of storage space. Tankers are sitting offshore unable to unload because storage facilities are full.” ¹

From mosler.org, an economics think-tank:

In the past few months, Morgan Stanley has been accumulating warehouse space in the Netherlands to store its hottest new property: oil … With the stock market proving lackluster, the oil market has been a godsend for the banks, which describe it as the new Nasdaq … Speculators have helped to drive oil prices to near record levels … Oil is the talk of the City with many millions of pounds being made every day … [The oil futures market] acts as a benchmark for the price of oil … If prices on the futures market rise too far above the so-called physical market [mentioned above to be around $40 a barrel], oil users such as airlines and petrol dealers pull out, so prices fall … However, this traditional equilibrium has been rocked by short-term speculators dipping in and out of the futures market. This has led to sharp rises in the price and far more volatility. Meanwhile, banks such as Morgan Stanley are also beginning to move into the physical market to buy oil or even entire oilfields. ²

So, who is driving up the price of oil? Are those dern camel drivers pocketing all your hard earned money? Well, to some degree yes, but not any more than usual. A small group of investors and banks are making hundreds of millions of dollars off of schleps like me and you by artificially inflating the price of oil. Mohamed is not ripping you off, Morgan Stanley (and their peers) are!!

The problem is that oil investments (called “hedge funds”) are out of control.

The International Energy Authority recently criticized the role of speculators. They have also been attacked by French and American government ministers. Alan Greenspan, chairman of America s Federal Reserve Board, said that speculators had caused oil prices to surge … A senior executive at one oil firm said, “This is the hottest oil market I have ever seen. There has been a massive increase in hedge-fund activity … [investments] have doubled recently.” … Hedge-fund insiders therefore say that oil is an excellent short-term bet. ²

Yes, the world is using more oil, but it’s interesting to me that the people making the most noise about a possible shortage are the same people who are raking in millions on oil investments.

Now, before you storm the bank with torches and pitchforks, let’s talk about what can really be done to save our economy from the same folks who orchestrated the big crash in the 1920’s (and the great depression that followed). I don’t have a hundred million dollars to spend on oil futures and even if I did, no one investor could restore the market. In fact, even the President of the United States does not wield enough power to correct the market (even though he is taking most of the heat for it).

The oil market will crash. Any artificially inflated market does (ex. margin stock in the 1920’s and dot-com ventures in 2000). However, I’m not sure that our current growing economy can wait for the market to correct itself.

Governments world wide could do a lot to cut this trend short, by being honest with people about the real cause of the price hike. I don’t believe this would instantly return us to $1/gallon nirvana as some do:

This could all be stopped in one day and the price of oil could drip $20 a barrel … if Treasury Secretary John Snow would hold a news conference and simply tell the truth about the oil reserves on hand and how the hedge funds are manipulating the markets. ¹

Would it help? Sure. Some investors would see that oil prices are artificially high and pull their money out of funds which are heavily invested in oil to avoid losing money on the inevitable crash.

Consumers, believe it or not, probably have the best chance of breaking this market. I know we can’t all ride our bicycles to work. Nor can we effectively boycott gasoline. There are some movements out there to stop buying from the biggest producers (ExxonMobile). That may have some impact, but probably not enough. The consumers that can impact the market are the big consumers: Airlines, utilities, shipping companies, etc.; the folks that buy gas by the millions of gallons. If the airline industry alone were to band together and demand lower priced contracts, it would put a strain on the market bubble.

Maybe, just maybe, between industry demands, intelligent investors, and government exposure, this bubble will burst and we can all get back to the great American past-time guzzling gas at reasonable prices.

So what can you do today? Do what you can to buy less gas: drive smart, car pool, travel as little as possible. Let the big consumers know that want to see lower prices. Contact major airlines and other big fuel consumers and let them know that you will support companies that fight for lower fuel prices and that you will withhold your buying power from companies that don’t. Contact your government representatives (House, Senate, White House, Treasury Dept., and Energy Dept.). Ask them to expose the truth about oil reserves and real cause of these painful prices. You may not have a loud voice, but a chorus of thousands of quiet voices will be heard.