While we’ve all become accustomed to going broke at the pump; you may have noticed that you came away from the pump with enough money to buy a cheeseburger this week.

That’s a good thing, of course, something we all want to see keep happening; that’s why it’s important to understand just why it is happening.

Speculation, the assumption of the risk of loss, in return for the uncertain possibility of a reward, is a common practice among investment bankers, typically hedge funds. In recent years, many investment bankers saw fit to buy barrels of oil which haven’t even been drilled for yet; thus, driving up the cost of those barrels as demand began rising much higher than the available supply.

The end result of all of this is higher prices for gas, along with many other petroleum based products, such as plastics, some paints and many solvents. This, in turn, has led to higher prices for any products which are made of plastic, make use of oil based paints or are manufactured using any of those solvents.
Now, the majority of this speculation began after 2005’s severe hurricane season caused oil shortages in some parts of the world. Many investors were banking on that keeping up in following years. When those hopes (sick as they may seem) were dashed, speculators began selling their oil, causing a sharp drop in price, which we have all seen at the pump.

For more information, refer to this CNN article.

This entry was posted on Tuesday, July 29th, 2008 at 11:20 pm and is filed under Taking Care of Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.