$106 Barrrel of oil. Speculator driven?

[Mo_Gearhead]

I’m a big Supply and Demand type person. I think that most markets are efficient because of this ‘balancing act’ if you will.

Some time back I wrote here (in a thread) that I felt most of the rise in oil prices was ‘mostly’ driven by new demand from growing economies (ie: India, China, etc.) I poo-pooed some of you that stated speculation was a big contributor. I am now here to eat humble pie.

From a recent story, I now know that speculation in oil has grown tremendously in the last few years. Now being used by huge banks, pension funds, wealthy individuals, etc. …oil futures are being treated as if they were stocks and bonds, as a hedge against inflation.

In 2000 the entire ‘futures market’ in oil was about 9 Billion dollars. In 2007 that market had grown to 250 Billion! That figure amounts to several months of oil demand for the entire world!

The war in Iraq, the declining dollar, recession in the USA, the housing crisis; there can be many factors that can drive money towards other forms of security for one’s money (gold, art, foreign markets, etc.) but it certainly seems that oil has now become a big part of the speculators portfolio.

It brings to mind however the question of, can it be sustained? Or will oil, at some point, hit the wall and take a dive (ala the U.S. housing market)?

I am not sure what series of events could bring that about, but I certainly hope it happens ...and sooner rather than later.

[Mule]

I agree that the speculation is driving up prices. Hopefully when the crash comes it gets the SOB's that caused this.

[Red Baron]

The current prices have everything to do with the weak dollar. This price trend started when OPEC prices for a barrel of crude were set in Euros rather than the US dollar. That alone has more to with the increaces than demand or refining capacity.

[hytem]

Originally Posted by Red Baron

The current prices have everything to do with the weak dollar. This price trend started when OPEC prices for a barrel of crude were set in Euros rather than the US dollar. That alone has more to with the increaces than demand or refining capacity.

Yeah--it's all about the weak dollar. And the dollar keeps declining relative to gold and the Euro, which is pushing oil higher for us. The main problem with the dollar is all that deficit spending Bush is doing--paying for the war with paper money. And the financial picture with the housing market doesn't help, either.
To think the price of oil was $20 a barrel in 2000! Somebody has screwed up in a major way.

I'm waiting for the politicians to start saying what a lot of people are thinking right now--we can't afford to stay in Iraq and have to get out. They have to end the welfare there.

[Rearden]

Originally Posted by hytem

I'm waiting for the politicians to start saying what a lot of people are thinking right now--we can't afford to stay in Iraq and have to get out. They have to end the welfare there.

Hillary and Obama say that in every speech.

[Mule]

Originally Posted by hytem

I'm waiting for the politicians to start saying what a lot of people are thinking right now--we can't afford to stay in Iraq and have to get out. They have to end the welfare there.

And when they end the welfare there, they can do the same over here!

[artplumber]

Originally Posted by Red Baron

The current prices have everything to do with the weak dollar....

Made weaker by constant lowering of the Fed interest rate in an effort to prop up the economy. Which will increase inflation, and drive consumer sentiment down, thereby worsening the economy. Makes sense, eh?

In addition, any reason can be made to look like it could impact oil negatively. Only whole scale change (in this country's energy habits) will make an oil investor hurt, and that won't happen for 10 yrs.

[Wickd89]

Free market.

This once meant an opportunity for innovation, now it just seems to be in line with GREED.

Marketing types selling us things we do not need, and the average person has been trained to believe it (for example the turn to SUV like the explorer, even though similar cars existed for years -blazers/broncos - but were never a big profit center for the big 3 until fuel/safety restrictions put on cars made them less attractive to make)..

What once was great, is now quite ugly...

[idontknow]

Originally Posted by Mo_Gearhead

It brings to mind however the question of, can it be sustained? Or will oil, at some point, hit the wall and take a dive (ala the U.S. housing market)?

If it does maybe will congress bail out the "victims" of the oil speculation market too!

Beyond that there would have to be a point where supply is so much greater than demand that prices have to drop to bring demand back up. OPEC has the ability to keep a very careful eye on supply to insure that this never happens. That was all IMHO.

[aigel]

I posted this in the RE thread earlier:

Oil price is based on speculation, not just the weak US dollar. Here an interesting article in a German paper (English site):

http://www.spiegel.de/international/business/0,1518,538412,00.html

Oil demand has increased less than 2% a year yet you have this type of trading activity?!



George