Posted on 05/14/2008 9:04:06 AM PDT by khnyny
"One of the things I think is very important to realize is that the growth in the world oil consumption is not that strong." —David Kelly, chief market strategist, J.P. Morgan Funds; The Washington Post, May 4, 2008
"...There is substantial evidence that the large amount of speculation in the current market has significantly increased [oil] prices." —U.S. Senate Staff Report, The Role of Market Speculation in Rising Oil and Gas Prices, June 27, 2006
On May 13, the price of a barrel of oil briefly hit a record of $126.98 on the New York Mercantile Exchange The reason was ostensibly that Iran was cutting oil production. But there is no gas shortage. So why are prices still going up?
In late April the American Association of Petroleum Geologists held its annual invitation-only conference in Dallas for, as my source put it, "the bigwigs" of the energy industry. During this meeting, influential and knowledgeable CEOs reached the consensus that "oil prices will likely soon drop dramatically and the long-term price increases will be in natural gas." Of course, despite the pedigrees of those in attendance, their forming a consensus on the direction of energy prices does not mean that it's written in stone or is even going to happen. The group is clearly bullish on natural gas. But petroleum keeps getting more expensive.
The energy executives' prediction about the future price for crude oil had sound backing. Just a few days earlier, Lehman Brothers (LEH) investment bank had said that this current oil pricing boom was quickly coming to an end. Michael Waldron, the bank's chief oil strategist, was quoted in Britain's Daily Telegraph on Apr. 24 as saying: "[Oil supply] is outpacing demand growth." Waldron added, "Inventories have been building since the beginning of the year. The Saudi Khursaniya...
(Excerpt) Read more at businessweek.com ...
Excerpt:
“It is an understatement to say that over the last five years the media have rained reports predicting an impending energy Armageddon. But those reports have tended not to disclose their sources—which often were individuals heavily invested in the oil futures market.
For example, Goldman Sachs was one of the founding partners of online commodities and futures marketplace Intercontinental Exchange (ICE). And ICE has been a primary focus of recent congressional investigations; it was named both in the Senate’s Permanent Subcommittee on Investigations’ June 27, 2006, Staff Report and in the House Committee on Energy & Commerce’s hearing last December. Those investigations looked into the unregulated trading in energy futures, and both concluded that energy prices’ climb to stratospheric heights has been driven by the billions of dollars’ worth of oil and natural gas futures contracts being placed on the ICE—which is not regulated by the Commodities Futures Trading Commission.”
Here you go :)
BS - The Fed has been increasing the money supply thus causing the dollar to devalue and inflation.
If oil production had also increased at the same pace as the increase in the money supply the price of oil would be $50.00 a barrel..
Looking at every cause except the True Cause.
Bump
for later
If they are cutting production, what are they storing on the tankers?
Inflation
sound familiar?
LOL! A glut, ya reckon!
When you have a good product it is in a prime location at Macy’s, not in a bin at the discount dollar store.
Oil supply and demand are both relatively inelastic in the short run, so that slightly increased demand or reduced supply will cause large changes in it’s price.
Whether that increased demand is caused by Indians pumping gas into their first motorcycle, or a Hedgie speculating, is irrelevant to our experience: either causes gas prices at the pump to increase. Stopping the filling of the Strategic Petroleum Reserve does marginally reduce demand, so prices will fall (at least slightly) when we do that.
Similarly, a supply increase of nominal size (say drilling in ANWAR or the California or Florida coasts) would put significant downward pressure on the world price of oil. These are politically stable places from which to get oil, which reduces the volatility of supply, a factor hedgies focus on when speculating.
Gas Taxes are a wedge between suppliers and users, so that both lose: The producer gets less revenue for less quantity consumed, and the buyer gets less product for a higher price. Gas taxes cause a deadweight loss of the consumer and producer advantages (”surplusses”) that the market economy creates. Reducing Gas Taxes even temporarily will cause gas retail prices to fall for the consumer, and increase income for oil companies.
High oil prices over time cause people to consume less. They move closer to work. They buy smaller cars. They insulate their houses better. They switch to non-oil based fuels. Etc. As shown by the 1970s followed by the 1980s, there is no better incentive for economizing than high prices. The environmental benefits also accrue, though as a helpful sidelight to the main show: saving money. No liberal should ever decry a high price for energy.
All of this will take care of itself. Someday when I’m dead, my grand children will all drive electric cars powered by nukes. There is probably no other way for motive transport to occur. Economics provides the answer to most problems of this earth. G-d will take care of the rest.
The esteemed idiot running the State of New Jersey into the ground is a graduate of the executive ranks of Goldman-Sachs.
“BS - The Fed has been increasing the money supply thus causing the dollar to devalue and inflation.”
Agreed!
Your point is well taken. It is really the combanation of both, lowering interest rates makes more money available while at the same time the Fed is also printing more Monopoly money.
“No liberal should ever decry a high price for energy.”
Does anyone know if some of the democrats who were using the oil executives for photo ops during the recent energy hearings voted FOR Gore’s attempt to raise gas prices to $2.50 a gallon back in the 1990’s?
You’re missing the key item:
“...There is substantial evidence that the large amount of speculation in the current market has significantly increased [oil] prices.”
Which is whatb I hae been saying for the past 3 years during the price run-up. If you take away the “speculation premium” I would say that a price of $50.00 is certainly in the ball-park of where the “Real” price of oil should be.
"Consider this: You may not buy gasoline or even eat today, but by next Monday you'll probably have to do both, no matter what it costs. Basically, besides enabling the Fed to bail out Wall Street and our banks again, every time you gas up or eat you may be paying investors to cover other financial losses. We know that investors can't control their losses on mortgages, securities, or bad loans. But, demonstrably, if not restrained they can drive up the price of goods that we can't get out of buying. Odds are, that's what's really been going on."
A product is worth what people are willing to pay for it in relation to what they think they can pay for it elsewhere.
If oil is $125/b it’s because there’s buyers out there willing to, and are, paying that. They’re not willing to wait, they’re not finding a better deal elsewhere.
And speculators are part and parcel of trading.
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