Saturday, February 25, 2006

Energy Pricing Boondoggle

Speaking of energy prices, I buy LDPE by the carload. The underlying raw material is natural gas. Our pricing almost doubled last year, and is only creeping down a bit at this point. There are many components to this whole mess, but among them:

Actual Supply and Demand
Perceived Supply and Demand
Fear by major purchasers creating hoarding
Greed by major suppliers creating false shortages
Unrest drives up futures markets
And my own personal touch - I think the major countries who supply energy are creating the crisis of the week to keep prices high. One week its Russia, then Venezuela, then the middle east, then Africa. I even suspect there are phone calls: "Your turn."

No, I'm not a wacko conspiracy theorist, but check out the news over the last two years. With the exception of Katrina, the rest of the spike in pricing can be attributed to the "news" of the week spooking futures.

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