Crude oil has one of the most complex and variable pricing mechanisms in the commodities market, and for that matter in the entire market. The gas price is affected by a host of different factors, and it can be extremely difficult to determine exactly what is pushing prices upward or downward at any given point in time. As you have no doubt seen recently, the crude oil markets have been extremely volatile and it can be possible to make or lose a bunch of money in a real hurry.

In highly efficient capital markets with very constrained supply and fairly inelastic demand, markets will adjust backwards to the old prices within a few days or a week at the most. The only difference between now and before is the extra $0.47 or so would now be going to oil producers, oil suppliers, refiners, and the owners of the gas stations. Even a small change like this would cause major profits for any investor that is holding a Gas Stock.

If the gasoline tax proposed in politics became permanent the plan would be much better suited because it would help the refiners and gas station owners boost their profit margins. As ridiculous as that may sound to you, that is exactly what needs to happen. Contrary to popular believe, the refiners and gasoline station owners are actually getting killed because they are at the mercy of the commodity spot market prices (the value where open fiscal markets trade physical goods) since they do not actually produce the good. They only act as the throughput and output, not the input. In the oil business they call this middlestream and downstream. Believe it or not, many gas stations are closing around America because they simply can’t keep up with the pricing increases. The %KEYWORDCAP2& has gone up substantially more than gasoline during the last three years, and it has come to a point where many of the gas stations and refiners are actually losing money every time they sell you gasoline. The reason for this is not because peopel that buy oil.

The current supply of oil is about 83 barrels every day world wide, but the demand for the commodity is up to about 88 barrels each and every day. The most recent numbers show that through April the United States was using 19.96 million barrels of crude oil per day, or somewhere between 23-24% of all daily demand. The United States only produces roughly 30% of the crude oil it uses domestically, which means we are importing roughly 14 million barrels per day. It’s easy to see how at the current prices of ~$130 per barrel this can add up very quickly. Until some portion of demand is completely destroyed to balance out supply and demand, don’t expect a relief in the gas price and don’t expect this argument to go away.

The interference of politicians is not something new in the marketplace, despite the fact that energy markets are in turmoil, the politicians simply will not stop playing their games. Don’t believe for a second that once oil makes a short term pull back that the politicians will not take credit for the market forces that caused the pullback because there is no doubt that they will. It will be much more humorous to see the look on their faces and hear their bumbling excuses when crude breaks $200 a barrel and gasoline is over $6.00 a gallon. Yet even if things start to correct slightly over the coming months, these issues are a matter of national security. If we go to war in the future with a country who has control of the Crude Oil Drilling, they could effectively dismantle the United States economy without firing one bullet or using one soldier. Our “Strategic Petroleum Reserve” only has about ~700 million barrels, and including current online production, that would last us just 50 short days. The government should have never stopped filling the SPR as it has placed our country at extra risk.

We are so reliant on offshore drilling to run our economy that it is important to understand the true factors at play. Those investors who are able to cut through the noise and analyze the facts will be rewarded with great returns in the long run.