The 3 month low for light sweet crude was on June 21, 2012, with the price per barrel being 81.90 on volume of 40,825. The high, before the Fed announcement of unlimited QE, was on September 10, 2012, with the price per barrel being 96.63 on volume of 221,966. The current price is 99.00 on volume of 254,700.

For this data I used the chart function on CNBC’s website so I don’t have a nice picture to look at, but the numbers alone are good enough to suit my purposes of explaining that problems with the price of oil, and subsequently gasoline, have almost everything to do with supply and demand. We use more oil with more economic activity. As we get a recovery, there will be more economic activity and more volume in oil trading. I’ve heard people say that the Fed doing QE only affects the price through devaluation of the dollar and does nothing for the economy. But in looking at these numbers, it appears that even at that high level, it doesn’t follow. What affects the price most is supply to volume.

I question whether it’s appropriate, or if people even understand what the flawed inflation logic means, to not get an overall economic recovery by using tight monetary policy to keep the price of oil lower by squelching demand for it (and everything else) when we can see that it doesn’t work very well given that oil is a global market. It creates overall additional expenditure when we have subpar economic performance that shows up in less government revenue, crashed markets, more unemployment and the social problems it creates, and an accompanying explosion in social spending to keep people from starving. Just so happens that attempting to control the price of oil with monetary policy merely shifts the cost and I would argue on a qualitative basis that the cost to society from doing it that way is much higher and piles more obligations on posterity than allowing the economy to evolve as it would otherwise and dealing with energy markets as they come.

High oil prices are indeed a problem, but I think there is a more rational way of dealing with it than throwing the baby out with the bathwater as politicians look for anyway they can to make it look like they are doing something about the problem, when in reality, they are simply creating one heck of an economic disaster. Don’t believe the lies they tell you and demand that the supply side issues involved in the energy problem are dealt with immediately.

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