Gas / Oil’s rapid price increase

The last time I paid attention to the gas prices was about 3 months ago. This was the time when I was driving my things from my house to the rented condo. By then the gas prices were about the price of PHP43. But the gas station now says gas per litter is PHP58! And to make matters worst, this rate will go higher and higher every friday night. It will increase PHP 1 every week. So to all you drivers and car owners out there you better Fuel up and have a Full tank before friday night. Do this especially if you’re planning a trip on a weekend.

I recently attended a training held by my generous company. It’s all about “Understanding Financial Markets and Services.” The training’s timing is just right because I could link my lesson into the World economy now.

We talked about the sub-prime woes in the training. If you don?t know about this then you may view my previous post

Sup-prime really had a multiplier effect working on things. One of them is the price of gas. Why so? How is it related? You see in this complex world of business and finance, people trade money, currencies, commodities (e.g. coal, oil), stocks and bonds. These are just the common ones. If you really go hard-core investment banking and finance, you would hear about trades in interest rates, futures and forwards, accounts and loans receivables, pledges, hedges, derivatives, exotic options and swaps, repos and many other more. The craziest ones I?ve heard are exchanges involving environmental derivatives (i.e., environmental licenses). I will research more about this.

Before the sub-prime, the trading market is blooming. Trades are being made here and there to almost anything you could imagine. Exotic derivatives and new products are appealing as these are new concepts in finance. Now after the sub-prime, investors have gotten afraid to put their money in these exotic derivatives. So, where does the investor?s money go now?

Investors go back to the basics. They put their money in old-school, well-founded, almost-safe, not-so-risky investments like stocks, bonds, and more importantly into commodities. And as I have mentioned earlier commodities include petroleum and oil. So these rich folks put their money to invest in oil companies.

Now, still unclear about the connection between the sub-prime and oil price increase? It?s just a matter of applying the basics of what you have learned in economics – the demand and supply. I?m no good economist really, but I also took 6 units of micro and macro economics in college. But thanks also to my training I found an explanation to this.

Imagine if all investors would want to invest in oil, and the oil company doesn?t have that much to offer to all, what does the oil company do? They increase their prices.

This is just one explanation about other reasons why the gas prices are high. For some other obvious reason, natural resources are really getting expensive and you don?t need a brain of an economist. You just need common sense on this.

That is why, from what I see and hear every day about the problems of the world, I do feel responsible for this crisis. I hope I could reach many and let people realize that we need to be more responsible for our natural resources.