Gas Crisis 2006: One Mans Crisis is another mans opportunity

America is in a crisis. What, haven't you heard? America is in the mists of a gasoline crisis! How Do I know, well don't you watch TV for heavens sake! Every time you turn on the TV and on almost every channel, almost every day there is some story about the record high gas prices and how all across the nation we are feeling pain at the pump. In fact the crisis seems to have gotten so bad that every politician from near and far and regardless of party affiliation has vowed to act and solve the crisis that was obviously the fault of the other guy in the other party. You know those guys I am talking about in the other party, the ones that caused the crisis in the first place! In fact things have gotten so bleak some have gone as far as suggest that the government give us a $100 check of our own money to help fill our tank a couple of times or even to resurrect the windfall profit tax. Oh Woo to us as we must be going through some dark times when a politician offers to give us something back without asking for or to promise to tax someone who is unpopular with the masses. So this must be bad and really bad!

So how bad is it, and how does this crisis rank with the other dark days in our nations history? Is it as bad as perhaps as the dark days of World War Two, or maybe its not like a war but perhaps more akin to something like the great depression. But whatever the case it must be bad because all the politicians say it's bad. Yet as I tried to compare this Crisis to others from our past, I have been hard pressed to find a comparison. It's not like anyone has died. And if this is indeed an economic crisis then where is the evidence? If this is a crisis then I think we need a lot more like this one. I looked around at the normal economic ‘pain’ signals and I am having a hard time finding any. Oh sure we have people on fixed incomes that always feel the pinch when prices move up but what you will find is that this gas crisis is a crisis that was built on the backs of economic growth and incredible demand. And where might that demand be coming from? Well I can assure you it is not coming from the hot air generated by Washington politicians! It’s demand caused by the ingenuity and hard work of average American that are enjoying the fruits of our hard labor. In fact, this demand that we are seeing is being caused by a lot of good things like good old economic growth. Demand like that caused by more Americans owning their homes than at anytime in the history of this country! The fact that we have built more homes in this country over that last few years than we ever have before. And that people who built these homes had the gall to want them heated! What excess! And some even went as far as to have them air-conditioned! And put in TV's, appliances and computers. How dare them! Our unemployment rate is at the lowest level in years and more Americans are working than at any time in the history in this country. Oh sure our gas prices are high but so are a lot of other things, things that have gone up a lot more than the cost of a gallon of gas.

One mans crisis is another mans opportunity! If one can recognize the fact that the cost of a gallon of gasoline is not the end of the world one might also be enlightened enough to see it for what it is, A rebirth of strong global demand for hard commodities. The explosion of the US economy followed by incredible growth in Asia has inspired some of the best market opportunities in years and not just on the upside but selling the corrections as well. And not only in commodities but in the stock market as well. As America is in the throws of what are politicians call a gas crisis the stock market is soaring to multi-year highs. So is this the crisis our Washington politicians are trying to save us from? Are the energy companies to take credit for our expanding economy? Is that why we need to pass anti gouging legislation because the economy is doing so well? Why do we need anti gouging? In fact the only reason that the gas price rise has come close to being a crisis was poor legislation from Washington in the first place. If it isn't unrealistic environmental rules it has been shortsighted handling of gasoline additives. In fact we would be better off if Washington just stayed out of it

So send a Memo to the Congress and pandering politicians everywhere: The free markets are working. Tell them without any help or more taxes from you oil prices may have peaked without you lifting a finger. Last weeks Department of Energy report was a perfect lesson in the laws of supply and demand and even with the interference by the government with new gas regulations and the poorly planned phasing out of MTBE it appears that prices may have peaked and are perhaps ready for a sizable correction. As gas prices continued to rise demand has started to ease and as a result supply is starting to rise. Oh sure in a few weeks there will be no shortage of politicians seeking to take credit for the sudden decrease in price. They may even point to the ridiculous anti gouging bill they passed in a heated frenzy but the truth is as simple as normal market factors at work. Of course that doesn't mean that oil prices are never going to recover or that the demand destruction will be permanent because more than likely it won't. But it does mean that we will see prices start to fall until demand heats up.

Last weeks Department of Energy report shows that more than likely refiners have turned the corner. Runs are up as is supply. Gas demand growth has stopped completely as demand has fallen even verses a year ago. And slight moderation of our driving habits might not be that bad a thing as economic growth has been on fire. The drop in demand will give refiners the time they need to build supply and build confidence and gain experience dealing with the challenges posed by ethanol. In turn gas prices will drop, then moderate, and then start to rise again. It's a cycle that will be dictated by market forces and not by the government and anti-gouging law.

And what is a gouge? It is what ever the government says it is? In another assault on our freedoms the free-market politicians have acted in haste and stupidity and in a way that will harm the average American. In times of tight supply it will create shortages. If we had the gouging laws on the books after Hurricane Katrina it is very possible that most service stations would have closed down as opposed to being investigated and convicted for gouging. If refiners made gas and sold it at fair market prices would that make them subject to the gouging laws? The government interference and the imposition of this law will ultimately mean at some point we will see a major gasoline shortage in our future. It may be after the next hurricane or perhaps the next crisis in the Middle East but rest assured if this law stands a shortage will eventually be the result!

By creating a false impression that evil oil companies are gouging the public the politicians are doing nothing to help solve a growing real crisis of a growing worldwide competition for a dwindling supply for oil. While our politicians hamper our oil company's ability to compete China is busy using their Wal-Mart dollars to secure oil supply across the world. China is drilling for oil in the Gulf of Mexico, off Cuba, and cutting deals with Nigeria, Iran, The Sudan and Canada. You've got Hugo Chavez in Venezuela saying he may want to sell his oil to places other than the US. You have Russia using oil as a weapon against Europe, Iran telling us that oil is going to $120 a barrel and Bolivia nationalizing its oil industry and Nigerian rebels blowing up supply. And here in America we are passing anti-gouging laws! What is wrong with this picture! The real crisis in this country is not the price of oil but the lack of imagination and leadership.

And yes some people are truly feeling some pain but for the vast majority of Americans these times rank with some of our best economic times in history. And for the futures markets times have almost never been better. Strong Growth has driven everything from oil to gold and copper. We have seen and will see the markets make some incredible moves. For those who can afford the risk the opportunities are abundant. Don't be fooled by those who preach doom and gloom, this is the era of the commodities market. An era that does not spell bad things for the US and world economy but a reflection of the good times we are having and will continue to have.

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About Today's Author

Phil Flynn is Vice President, Energy Analyst and General Market Analyst with Alaron Trading Corporation. Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

Most recently, Phil and his energy team were one of the first to predict that global crude oil prices would exceed $30/barrel in the year 2000, a correctly-predicted market milestone which has highlighted the economic scene in the new millennium. Through hundreds of media interviews, Phil Flynn and Alaron Trading have become familiar names in living rooms and boardrooms worldwide. The world's print, broadcast and online media have come to rely on Phil's accurate and animated forecasts and analysis.

Media highlights include: The President of the United States, Bloomberg, ABC, CBS, NBC's "Today Show" and "Nightly News with Tom Brokaw", CNBC, CNN/ CNNfn, FOX's "O'Reilly Factor", PBS's "The Newshour with Jim Lehrer" and "Nightly Business Report", MSNBC's "The News with Brian Williams", Wall Street Journal Report, The Wall Street Journal, Business Week, Investor's Business Daily, The New York Times, The Los Angeles Times, Chicago Tribune, Associated Press, The Toronto Globe & Mail, Houston Chronicle, Futures Magazine and National Public Radio.

Phil's daily market analysis can be viewed at Alaron's website, the world's leading futures Web site. He has been featured on MarketWatch.com and FutureSource.com.

Phil's commitment to and experience in futures trading is documented in two books, The Mind of a Trader (Financial Times/Pitman,1997), and Trading Online (publisher, date), both by Alpesh B. Patel. Phil is a lifelong resident of Illinois. He attended Daley College in Chicago before beginning his career on the trading floor of the Chicago Mercantile Exchange.