Why is gas so expensive?
It used to be you knew prices were rising when you found out about it in the news. Now all you have to do is look at Facebook. Plenty of people are posting pictures of the rising prices at the gas pumps these days. Everybody is feeling the pain at the pump and things probably aren’t going to get better any time soon.
In his recent testimony to the House Financial Services Committee, Fed Chairman Ben Bernanke said, “Higher gasoline prices could lead to temporary higher inflation and reduce consumers’ purchasing power.”
Translation, life is about to be more expensive — again.
Why is gas so expensive?
The question is what’s causing the price of gasoline to rise?
It’s certainly a hot button issue in this year’s election cycle. But as with any election, sound bites win the war, not facts.
For instance, there will be a lot of chatter about the need for increased domestic oil production to help lower gas costs in this election year.
But the facts are that prices are rising despite increased domestic production. As The New York Times reports, “Domestic crude oil production is actually up from 5.4 million barrels a day in 2004 to 5.59 million now; imports have dropped by more than 10 percent in the same period. Despite a temporary slowdown in exploration in the Gulf of Mexico after the BP oil disaster, the number of rigs in American oil fields has quadrupled over three years.”
Why gas prices are really rising
So, what’s really causing the price of gas to rise?
The reality is that factors beyond our control are causing the pain you’re feeling at the pump. Among those factors are increased demand in China and increased instability in the Middle East such as the crackdown in Syria and the showdown between Israel and Iran.
Of biggest concern is the possibility of war between Israel and Iran, with the U.S. also moving back and forth between rhetoric for diplomacy and a readiness to strike. Economists fear that if the conflict escalates to war and oil production is disrupted that the price of gas could soar to over $5 per gallon.
There’s not much any politician in the U.S. can do about that. As The New York Times notes, “A country that consumes more than 20 percent of the world’s oil supply but owns 2 percent of its reserves cannot drill its way out of high prices or dependence on exports from unstable countries.”
Why rising gas prices are good for me
So, what does this mean?
For me, it means that while life is going to get more expensive for most people, I’m going to make more money.
For a number of years, I’ve invested in the oil industry with the belief that prices would rise. As the world demand grows, production is stretched to capacity. Add to that the on-again, off-again disturbances in the Middle East — the world’s greatest reserve of oil —and you have simple supply and demand pressures pushing oil prices up. Until the world discovers a viable energy alternative to oil, the price of oil will rise.
Through my investments in oil, including oil rigs, I’ve also experienced significant tax breaks. Despite what the politicians tell you, they want to reward oil production and encourage it through the tax code. By staying on top of tax code with the help of my tax advisor and author of Tax-Free Wealth, Tom Wheelwright, I’ve added significant tax savings to my investment earnings through oil investments.
Both the ability to understand and capitalize on the national and international trends in oil production and to utilize the tax code to increase my profits requires a high financial IQ. But the investment in my financial education has paid big dividends in this and many other areas of my life.
Where can you profit from financial education?
Am I suggesting that you invest in oil? Not necessarily. That’s an area I’m interested in and profit from. But I’ve been doing it for a long time, starting when prices were much lower. It’s a complicated world and a risky one for those with little-to-no financial education. Things can change fast and money can be lost quickly.
Rather, I’m suggesting that you start paying attention to the world, building your financial education, and applying it in the real world. The only other option is to hide your head in the sand and suffer along with everyone else. Given that, there really isn’t much to lose, is there? So, where can you profit from financial education?
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