We’ve all engaged in the speculation wars as to the reason for oil prices’ astronomical rise in such a short time. The four most common arguments are:
1: questionable speculators activity
2: decreasing supply and increasing demand - and peak oil theories
3: Iraq or Middle East conflicts and terrorism
4: falling value of US dollar
I’m neither an accomplished economist, nor an oil expert. But I’m one curious individual, so I set out to see if I could shed some light how just what to believe. There’s considerable amount of data here (meaning long! a week’s worth!) but I’ll share my research on the four issues mentioned above… and my attempt to put it all into perspective…. sans politics. (the “gasps” abound, no doubt…)
To agree on a solution, we need to know the cause of the problem.
The article that sparked my increased motivation and quest came from Australia’s Herald Sun yesterday, Speculators to blame, says OPEC”.
The monarch, who said Saudi Arabia would give $US1.5 billion ($1.57bn) to efforts to ease energy shortages in poor nations, told the 36-nation summit his country was “very concerned” about consumers worldwide.
He blamed increased oil consumption and taxes on fuel, but said: “Among other factors behind this unjust increase in oil prices is the abhorrent act of speculators acting for their own selfish interests”.
The most common thought on the speculators is that the buying frenzy is creating a positive feedback look, driving the prices artificially high and creating an economic bubble - much as was done with the housing prices in both the UK and USA. Along that line of thought, Congress is busy crafting legislation aimed at regulating speculators, while McCain has called for “thorough and complete investigation of speculators” to see if they’ve driven up oil prices.
Alan Reynolds termed this knee jerk reaction as a “witch hunt that’s clearly about oil” in an article that ran in the NY Sun June 20th, titled “Scapegoating the Speculators”, and was reproduced on the Cato Institute site.Reynold’s debates OPEC’s accusation. Speculators, purchase the contracts and sell those before their expiration date, in the hopes of making profits. Sometimes this entails betting the prices goes down instead of up. Or as he puts it, Guess wrong on the direction, and you lose money. Read the rest of this entry »
