Get Ready for the Oil-Price Drop

Cato Institute ^ | June 5, 2008 | Alan Reynolds

[penelopesire]

“Two record jumps just after the obama confirmation.”

a 70% increase since the dems took control of Congress!!

[allmost]

What are pointing out facts for? :)

[JasonC]

Um, expect if you lose a bet, low interest rates won't save you. Insolvent firms don't get loans, from the Fed or anyone else.

Yes low rates encourage speculation in anything moving rapidly, and trend followers will not be slow to glom onto any moving price and bet on it continuing with borrowed money. But as soon as the trend actually reverses, those still playing will be wiped out. And nobody is going to save them.

[RightWhale]

Does this mean gas prices are going to drop too?

They did. Last Wednesday. About 0.3 cents. Hope everybody took advantage of the opportunity.

[Stentor]

In other words; Kill my children, rape my wife, but PLEASE spare me!

Do you have malaria?

[SampleMan]

These myths get retold every time the price of oil shoots up. It hasn't happened, and it won't happen.

Its happened many times.

[JasonC]

Very likely. But it is mostly hedge funds. Look, it is perfectly normal for speculators to blow bubbles in some asset class or other. It was tech stocks, then it was real estate, now it is commodities. Every one of them soared to several times what it is really worth, and every one of them will smash in the end. Commodities are a smaller "pond", so the moves are more dramatic in percentage terms. Real estate was a very big one, so the moves were more modest, but all the players borrowed most of the money, to make the moves just as huge for themselves.

[dennisw]

That was more due to the Israeli guy shooting his mouth off about Iran. This is a staggering bull market. It is my sincere wish that when oil prices drop the bastards that went long on margin get hurt bad. They will have been responsible for the biggest economic problem in this country in 70 years.

And how many of these "long on oil" investors in American futures markets might be foreign? Such as Russians and Iranians who have a direct interests in higher energy prices.

Also if I was Iran I would try to keep oil prices insanely high to make a US/Israeli attack on my nukes less likely. The way to do this is by meddling in the futures markets

[Stentor]

Two record jumps just after the obama confirmation.Exactly. Rats legislating and rats potentially executing.

[allmost]

My unicycle is a bit rusty. WTF?

[NRG1973]

This has been delayed somewhat in the case of oil by the unwillingness of large existing producers (largely state owned, but also western majors) to invest to raise output, when instead they can just ride a scarity train. But that only operates until prices cut demand on the one hand, and make substitutes profitable on the other.

The problem with "substitutes" is that, in the case of oil they take a long time to come online. We have been using refined oil products in this country for a long time. There are still many homes with oil heating...and they can't all change at once. Trains, boats and planes run on refined oil...but we can't change them all to "substitutes" quickly. Cars, trucks, lawnmowers and plaeasure boats also run on refined oil...but we can't change over our entire fleet quickly.

Now, here is the kicker. The effort of changing our oil based energy infrasructure to "substitutes" consumes oil in itself. Thats because the equipment that mines the ores and transports the ores to the factories and then transports the intermediates to the job sites to build the "substitute" infrastructure...those all consume oil.

We are faced with the reality that we must produce more oil now to even begin a migration to a non-oil energy infrastructure...and that migration is going to last for 35-50 years. So we need to ensure a reasonable supply of oil for 35-50 years.

[dennisw]

Very likely. But it is mostly hedge funds. Look, it is perfectly normal for speculators to blow bubbles in some asset class or other. It was tech stocks, then it was real estate, now it is commodities. Every one of them soared to several times what it is really worth,

In so many words you are saying Americans our screwing ourselves. That American hedge funds are engaged in massive oil/energy speculation. Enriching our foreign enemies

That hedge fund speculation is much greater than Iranians and Russians jumping into and manipulating our futures markets. So they get more for their oil

[Mr Ramsbotham]

Take a look at this comparison chart:

http://inflationdata.com/inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp

[DWC]

Sometimes there is great pain before gains. After ford and carter, we had Reagan.

[Mark was here]

Well the so called housing bubble, has never popped, proving many ant-bubble Freepers correct.

[JasonC]

You way of life is already a shambles - Obama is supported by half the population, Iran is getting nuclear weapons, Bush is abused and derided and called Hitler, US soldiers are mass murderers, terrorist goons are heroic freedom fighters, etc.

If oil prices continue to rise, oil prices will fall again by more, right afterward. You can buy all there is and not offer it to anyone unless they pay you the moon - but they simply won't, they will just get their energy elsewhere.

If one wants to reduce the dislocation costs involved, fine, stop it tomorrow, easy as pie. Blow up the Iranian nuke plants. Call in the heads of OPEC and tell them they are raising production 10%, or the US navy starts collecting a $50 a barrel transport tax for using the oceans. If they don't like it they can try to run supertankers past 50 SSNs. Or instead drill in Alaska, open up closed coal lands, approve a thousand strip mining permits, tell greens to take a flying leap, offer synthetic operators 40 year fixed priced buy contracts, etc.

Men aren't doing either because they dislike the costs of those courses of action, more than they dislike the costs of paying a little more for oil, temporarily. But we are entirely free to deal with it either way. The impasse isn't economic, it is purely political. The left wants the world to not use carbon based fuels, and prefers de-industrialization and appeasement of terrorists. The west continues to support them anyway, and gets exactly what it is asking for.

[am452]

Yet oil prices hit all-time highs on Thursday AND Friday, even though earlier in the week, Rush was yip-yip-yahoo-ing a minor price drop, as he "predicted prices would fall."

Rush Limbaugh Thursday 1:05 5-30-08 "Oil prices are going down just like I told you they will..I told you people, I told you people..."

LMAO

[RegulatorCountry]

And this from the Bear Sterns who need rescued by the Feds. I wouldn't put a lot of stock into what they say but for some reason these *&%(&%$()& jerks seem to know just how to jack up the price of oil futures.

Bear Stearns are "talking their book."

[am452]

The price wont tank. You know it. Getting it down to reality is the main concern

I have been saying this all along. Last year they saw we would pay 3.40 a gallon so this year is 4.00. Next year it will be 4.50-5.00

[IronJack]

These myths get retold every time the price of oil shoots up. It hasn't happened, and it won't happen.

Exactly. Since there's no logical reason for oil to be at $135, it's no less logical for it to go to $150 or $200. The fallacies here are that oil is a free-market commodity and that its price is governed by reason. It's not and it's not.

When there's no flexibility on the demand side, but the supply side is readily manipulated, the price can be anything the profiteers want it to be. Trucks can't stop rolling; planes can't stop flying; ships can't just drop anchor and ride out the storm. Commerce won't cease just because oil is grossly overpriced. Inflation will go through the roof, but we'll keep driving, flying, and sailing along and paying whatever the extortionists charge.