August 29, 2008;
David Bahnsen brings up a topic that we have all been aware of and all been affected by in the recent months and years; oil prices and its affect at the pump. But his focus is not on a national scale as an economic disaster, but rather at a personal level and how it will affect your financial investments in energy driven markets. The price of oil per barrel has reached an astounding mark of $ 145 this summer (July 2008) and has gone down from that today ending on Thursday at $ 115.59. Though there has been some drop this is still a far cry from the price which sat comfortably at $ 20 per barrel in 2002!
The problem of high gas prices isn’t new, the media has been all over the situation and has kept us “informed” of reasons why things are the way they are. Bahnsen argues in this article how “informed” we really are. According to him the media has tried and dump the blame on “oil speculators” for “artificially moving the price of oil up”, but in reality these speculators do nothing like that. They play the role of a betting man in Vegas, they profit off of what they think the oil price will be. A dollar put on prices going up means there’s a dollar being put on prices going down, this is the reality of the futures market in which oil speculators are the gamers simply playing an even-sum game.
Bahnsen’s argument key notes the basic ideas of supply and demand. Simply put, prices are directly set by supply and demand forces and in today’s world the demand for oil has drastically increased while supply has not increased to meet demand. This drastic increase in demand is due to the massive industrial enlightenment achieved by countries such as China and India. The rise of these nations has caused a greater worldwide demand for oil that may have not been there six or seven years ago. Much has been said through are media of our failure to catch supply up by not using off-shore drilling, bio-fuels, solar and nuclear power; Bahnsen isn’t interested on how or what is used just that it can affect the simple point of supply and demand. “If less people need oil, prices should come down and if more oil is available, we can expect a downward pressure on prices” (line 36-37).
The “You” comes into play at the end of the article when Bahnsen addresses your financial portfolio. Investments must be ready for the changing cost of world energy. Your monthly budget should reflect the parallel in the cost of world energy and your own energy consumption. Lastly he stresses the fact that one should “never presume that the way things are, is the way they will always be” (line 53).
I found some of the points that Bahnsen brought up to be somewhat refreshing. He broke down something that most of us are aware of and showed its roots. To me he was basically saying this; in today’s world of high oil prices, when you’re making an investment in the energy markets be sure to look at it in its simplest form. If you think it will increase supply or decrease demand while staying consistent with your everyday use of energy, then it is a good idea to invest. Any alternative sources of energy would preferably want to catch supply up with the high price of demand because nations such as China and India are not going to all of a sudden pack it in.
http://www.worldmag.com/articles/14358
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