Why oil prices are nuts, and why it is crazy not to invest in oil stocks

OK

So we have high oil prices (~$71/barrel) and this shows no sign of dropping again soon. The reason is not lack of supply or invetory shortages or a growing demand. The given reason by various unnamed and unsourced analysts is that its is due to the "uncertainty" of supply from Iran and Nigeria for political instability reasons. In addition to political instability transoceanic shipping for the transport of oil from producers to refiners and consumers is at 100% capacity and reserved for the forseable future. Also refineries within the United States are operating at peak capacity.

That explains the costs mainly on the side of the importers.

Now for the domestic side:
Credit Card fees from retailers account for roughly $0.07/$2.00 added on to the price of gasoline that have to be added on to provide an acceptable profit for the retailer.
Refineries again
Natural Disasters: Such as any hurricane, cyclone, earthquake or other infrastructure damaging event due to nature
Mechanical Failure: hey it happens, but its rare
Terrorism: It could happen and this leads to...
SPECULATORS: Here is what really drives the price of oil. Oil futures are traded openly and when people begin buying a large sum of these contracts in the direction of higher prices then you get HIGHER PRICES.

A great deal of speculation is based on emotion; not how things ARE but how they are THOUGHT to be. If there is a rumor of a shortage, speculators begin buying more driving the prices up. THen if information comes out contradicting the shortage of supply the futures are sold short and a profit is made to buy up MORE oil futures and once again drive up the prices.
It is a fun little cycle.

Statistics on the oil industry can be found here for those that are interested in seeing how the oil industry works and also how some other industries operate in comparisson.

As to my opinion on all of this...

If one is a proponent of the european model of economics (high taxes and no growth) then this is a good way to continue. When one looks at the price of oil, one can see the real people gouging you are not in BIG OIL. They are instead in the state and federal government. The government takes revenue from these products and then on top of that does nothing else but add costs to the companies making this product and get in teh way of commerce.

I am not arguing for some kind of deregulation of the oil industry where the state does nothing in the way of environmental regulations. However, the states/federal government should realize that they are harming the consumer. Of course there are those that feel high oil prices are a good thing and will discourage the alleged disproportionate consumption of oil by the USA and this will inturn have a positive impact on the environment.

Funny thing that...

It would be true if the government could ever do with less revenue and a cut in social programs. Mind you these social programs are promoted by the very same people (yes I mean you liberal democrats) that want the higher gas taxes to discourage consumption for the sake of the environment which in turn reduces the amount of revenue (from that tax) that goes to the government which results in budget shortfalls and programs being cut and that will be blamed on the rich for not paying their fair share (whatever that is) or BIG BUSINESS.

The reality of the gas tax based on $/gallon as it is today is parasitic and not symbiotic as it would have been dreamed to be. An example of this happening outside of the oil and gas industry is with BIIIIGGG Tobacco (yes those evil evil tobacco farmers and product producers). Lately people have begun to smoke less and buy fewer cigarettes so the states get less money to fund the health care systems that the tax revenue used to. So get ready for higher taxes in other areas. You should thank smokers for subsidizing your state healthcare, give one a hug if you see him or her.

Oregon is trying to dump the gas tax in favor of a GPS driven toll tax. No need for toll booths or attendants, your in car GPS unit will serve the same purpose...oh and record everything your car does like...break the speed limit and such. *wave good bye to privacy* your car is now evidence against you.

SO don't blame big oil for big prices; blame big government

;)