$3 or higher

I just read an article that says that gasoline this summer will probably $3 per gallon or higher. This is a topic that I have heard very good opinions on both sides of the argument.

One side says that it is free market effect that causes the high gas prices. Oil is traded in an open commodities-style market and that is what sets prices for the gas stations. People with this opinion believe that the demand has outstripped supply and that is what is causing the price increases.

The other side says that the oil companies manipulate the price by not building more refining capacity and creating fake shortages to raise prices. They would also say that even though the Nymex controls pricing it is not truly a free market when the same companies are on both sides of the transaction.

Unfortunately, in this case, I tend to agree with pieces of both arguments. I do believe that market forces are driving the price increases. I think that those market forces are being manipulated by the companies and by government. The current regulation in the market is not allowing natural market price controls to take effect. In a pure market, high prices would be met by increased competition that would increase supply, that would in turn level prices. In a regulated market, the competition can't get into the game because of the obstacles that the regulations put in place.

The other argument is whether "someone should do something about it". Many believe that the government should intervene to moderate the prices. They think that the high prices will hurt the economy and that gives the govt. the right to intervene.

I would say let the market handle this problem. We have already seen that domestic oil production has risen to help meet demand. If you will notice ethanol has become a much more talked about option. Hybrids are starting to take hold in the U.S. For years and years, environmentalists have pushed for controls on gas mileage and moving to cleaner fuels. All of the government regulation has done little to wean us from our SUVs or oil. One plus year of high priced gas has done more to move to alternative fuels than environmentalists have done in their existence.

In my opinion, there will be some pain for the next couple of years while the market adjusts. Once that is over, OPEC and the oil companies may well be wishing that they had tried to better control prices. The new energy cartel may be Kansas, Iowa, Nebraska and any other state that can produce lots of corn. Or possibly some other fuel!

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