Trading Places with Europe

Hollywood has very little to do with day-to-day life. Here you get mainly fairy tale scenarios that could only take place in the movies; the Chicago Cubs in the World Series and actually winning it, for example. Still, when the story line isn’t believable-i. e., “Trading Places”, wherein the rich and powerful are bankrupted-the central plots can sometimes be based loosely on factual information.

Take that venerable movie we just mentioned. In “Trading Places”, Mortimer and Randolph Duke using what they thought was inside information, are planning on cornering the market in frozen orange juice futures. None of what happens in the movie approaches reality, except the insanity on the trading floor that is the real climax of the whole movie. To see it explained in some detail, see http://www.dangerouslogic.com/trading_places.html.

Futures exchanges can play havoc in real life, and it is just as difficult to understand or explain. Take the unrest in Libya. Because of it, we are seeing immediate increases in the price of petroleum products in the U. S., even though we don’t import oil from Libya. Most of Libya’s oil, in fact, goes to Europe. So why is the price of gasoline increasing here so quickly? Well, that’s just as hard to understand as the events in “Trading Places”. To explain it completely would take far more space than is allotted this column, but if you go to a couple of web sites, you might be able to understand what’s going on.

The first is http://www.freerepublic.com/focus/f-news/2679388/posts. This explains in some detail all the factors that affect the price of oil and the products that are refined from it. The second site looks at how oil prices are affected by speculators-the whole “Trading Places” gang. Just go to http://commoditybullmarket.blogspot.com/2011/03/march-2011-oil-price-outlook-why-libya.html . You can get to these sites by typing in certain key words; dangerous logic trading places; free republic.com focus f-news 2679388; or commodity bull market blogspot march-2011 oil price outlook why Libya.

There’s no denying the complexity of the world’s economy. This much is made very clear when looking at the overall picture when it comes to how petroleum products are priced. But there is that tacit factor that is common to all futures trading, and that is greed. Greed is the most easily understood thing about “Trading Places”. Well, greed and the so-called upper class elitism that led the Dukes to treat everyone so shabbily.

Greed or perhaps the desire to make a quick buck- as defenders of our free-market society might prefer to phrase it-plays a very important role in oil prices, and subsequently in the price of everything that makes our economy hum, or sputter, as it will no doubt do, should futures trading push the price of gasoline over $4.00 a gallon.

But there is one much needed factor that is missing and that is competition. Sadly, that is one commodity that seems to have completely disappeared from the petroleum industry. In fact, Exxon Mobil, Royal Dutch Shell, British Petroleum, Chevron and ConocoPhillips constitute fully half of the ten largest corporations in the world.

They might have been looked on as trusts at one time. And they might have shared the fate of Standard Oil. Alas, times have changed, and for consumers of petroleum products, not necessarily for the better.