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Posts Tagged ‘The Roller’

There is a public mythology concerning the oil markets that has been fueled by a sharp rise in oil prices in the last few years.  That perception is that the oil companies whose job it is to acquire the raw materials to make petroleum products, including gasoline for transportation, are the source of the rising prices.  It is easy for the public to pin the blame on big business.

The truth is that those on the inside of the oil business know full well that the oil business is tremendously cyclical.  That means that the old adage, “whatever goes up must come down” definitely applies to the oil markets domestically and around the world.  The current high prices are more a reflection of problems with refineries and with supply due to tension in the Middle East than it does with the profit objectives of the oil companies involved.  In truth, oil companies have to cope with sweeping shifts in supply and demand and it impacts how they plan their economic futures as much or more than it affects the average consumer.

This upswing in the price of gas is not the first time the oil business has seen huge profits and gains in their returns.  And anyone who has been in the oil business for a few decades knows full well that the current high profitability economy which is benefiting oil companies tremendously will turn the other direction at some point.  Just as there is a shortage due to problems with repairs or temporary shut downs at the nation’s refineries, there will come a time when all refineries are producing at full capacity and there will be a glut on the market which will drive prices down.

Similarly just as oil shortages dominate the market and are on the minds of consumers because of Middle East tension, oil supplies can shift dramatically.  A new discovery in Asia, The Soviet Union, Europe, South America or off shore in America can suddenly send a glut of supply into the market that will send the price of crude oil plummeting and with it, gas prices worldwide. Read the rest of this entry »