The price of oil goes up; the price of gas goes up. The price of oil comes down; the price of gas goes up. The price of gas goes down and the price of oil goes up. Who in the heck is sailing this energy boat anyway? Who, or what, decides on how much each of us pays at the pump? The problem is many unrelated things come together in varying degrees to drive prices up and down in ways that seem to defy logic and common sense.

Some Ancient History

Oil is a commodity sold on the world market. People purchase oil futures, guessing whether the price of oil will rise or fall over a specified period of time. Guess right and you’re rich; guess wrong and you’re very poor. Savvy investors who keep tabs on oil trends and prices know that 10 of the last 11 recessions came after a dramatic increase in the per barrel price.

In July of 2008 oil spiked at $140.00 a barrel. By December, just six short months later, the price plunged to $40.00 a barrel. Gas prices went from $4.09 per gallon in July and below $1.70 in December. Combine that with some bank failures, toxic subprime home loans and the devaluation of the dollar and you have the worst recession since the Great Depression of the 1930’s.

What Affects Oil Prices?

Most of us like to think the world revolves around America but that’s no longer true. Emerging markets in the B.R.I.C. (Brazil, Russia, India, China) are putting more demand on oil supplies. Increased drilling in the US would only make sense if America were paying the highest prices for oil. That’s not currently happening. For the first time in history the US is exporting more gasoline than we’re using.

The oil speculators that used to build a cushion into their pricing every time someone rattled a saber in the Middle East have learned their lesson. Oil has pretty much stabilized over the past couple of years between $105 and $85 per barrel.  That’s the price point where the best return on investment is realized.

Our Driving Habits

When gas approached $4.00 a gallon, and more in some regions, people altered their driving habits. However, when prices came down those same drivers did not revert to their previous bad habits. They found they could save money at $4 a gallon and continued that saving when the price dropped to $3 a gallon.

Some Final Thoughts

Will alternative energies replace oil? Someday probably — but not in our lifetime. I think you’ll find it pretty hard to ride your bike very far with no lubrication. Asphalt for roads would be a problem and try doing without plastics in our lightweight world.

Six billion people in the world, each one trying to solve the world’s energy problems in their own countries, yet the internal combustion engine still goes unchallenged on our world highways. When someone can create a gas tank sized power source that can run an automobile at 75 mph, with lights, air, CD player, and heated cup holders, that person will pass everyone on the Forbes richest list. I sure hope I’m around to see it.