The scam behind the rise in oil, food prices

[Capt Bringdown]

Speculation on the futures market, rather than supply and demand, is driving up costs, analysts say.

"The next time you drive to the gas station, only to find prices are still sky high compared to just a few years ago, take notice of the rows of foreclosed houses you'll pass along the way. They may seem like two parts of a spell of economic bad luck, but high gas prices and home foreclosures are actually very much inter-related. Before most people were even aware there was an economic crisis, investment managers abandoned failing mortgage-backed securities and looked for other lucrative investments. What they settled on was oil futures."

[Capt Bringdown]

"It's a scam folks, it's nothing but a huge scam and it's destroying the US economy as well as the entire global economy but no one complains because they are 'only' stealing about $1.50 per gallon from each individual person in the industrialised world.

It's the top 0.01 per cent robbing the next 39.99 per cent – the bottom 60 per cent can't afford cars anyway (they just starve quietly to death, as food prices climb on fuel costs). If someone breaks into your car and steals a $500 stereo, you go to the police, but if someone charges you an extra $30 every time you fill up your tank 50 times a year ($1,500) you shut up and pay your bill. Great system, right?"

[angrydude]

if only there were some way for these people to go bankrupt. Oh wait, if we don't bail them out with our tax dollars the economy will collapse.

[Capt Bringdown]

US uses 18 Million Barrels a day, of that, "only" 3 million are are imported from areas other than Canada and Mexico. Plus, "225-day supply under contract for delivery at the current price or cheaper plus we have a Strategic Petroleum Reserve that holds another 727 Million barrels (full) plus 370M barrels of commercial storage in the US (also full) which is another 365.6 days of marginal oil already here in storage in addition to the 225 days under contract for delivery."

Wow...so much for supply & demand.

[Wild Cobra]

Speculation on the futures market, rather than supply and demand, is driving up costs, analysts say.

"The next time you drive to the gas station, only to find prices are still sky high compared to just a few years ago, take notice of the rows of foreclosed houses you'll pass along the way. They may seem like two parts of a spell of economic bad luck, but high gas prices and home foreclosures are actually very much inter-related. Before most people were even aware there was an economic crisis, investment managers abandoned failing mortgage-backed securities and looked for other lucrative investments. What they settled on was oil futures."

They can only create bubbles, and I'm skeptical of that effect on a world commodity. Bubbles never lasts long anyway. They can only bluff so much. OPEC and other producers have far more effect because they affect the supply of the supply and demand equation. Speculators have little control over the supply or demand.

[Wild Cobra]

if only there were some way for these people to go bankrupt. Oh wait, if we don't bail them out with our tax dollars the economy will collapse.

But they are too big to fail...

[Capt Bringdown]

They can only create bubbles, and I'm skeptical of that effect on a world commodity. Bubbles never lasts long anyway. They can only bluff so much. OPEC and other producers have far more effect because they affect the supply of the supply and demand equation. Speculators have little control over the supply or demand.

How does oil speculation raise gas prices?

Despite U.S. petroleum reserves being at an eight-year high, the price of oil rose dramatically beginning in 2006. While demand rose, supply kept pace. Yet, prices still skyrocketed. This means that the laws of supply and demand no longer applied in the oil markets. Instead, an artificial market developed.

Artificial markets are volatile; they're difficult to predict and can turn on a dime. As a result of the artificial oil market, the average price per barrel of crude oil increased from $31.61 in July 2004 to $137.11 in July 2008 [source: DOE]. The average cost for a gallon of regular unleaded gas in the United States grew from $1.93 to $4.09 over the same period.

[Wild Cobra]

How does oil speculation raise gas prices?

That's an incomplete analysis, and I said it only works short term if it does.

The buyers pay a given amount. However, that's not a global price that all pay. Paying too much can easily result in a loss when the market uses less, and they still have product as the price decreases again.

Sorry, but supply and demand rule over the long term. Speculators are willing to pay more money when the perceived future supply decreases. Not as a means of increasing the price. This Libya situation and making future product skeptics, and this administration making it harder to drill in and near the USA are supply driven increases. So are OPEC announcements.

[boutons_deux]

"OPEC and other producers have far more effect because they affect the supply of the supply and demand equation"

Theorize erroneously much? producers don't affect demand. They can restrict supply, but OPEC's cartel isn't as dominant and influential as it was in the '70s.

Traders and speculators pushed oil to $148 in 08, while Saudis were saying they have plenty of oil (supply), and no buyers(demand).

[Wild Cobra]

Traders and speculators pushed oil to $148 in 08, while Saudis were saying they have plenty of oil (supply), and no buyers(demand).

I sure would like to see that evidence...

[boutons_deux]

"do your own research"

2) Saudi Arabia noted recently [May, 2008] that no buyer of oil is being turned away; other producers claim that the world is awash in oil. There is an ample supply of oil for consumption; while some premium for a supply disruption is built-in,

http://seekingalpha.com/article/8048...ly-speculation

[Wild Cobra]

"do your own research"

2) Saudi Arabia noted recently [May, 2008] that no buyer of oil is being turned away; other producers claim that the world is awash in oil. There is an ample supply of oil for consumption; while some premium for a supply disruption is built-in,

http://seekingalpha.com/article/8048...ly-speculation

Fail.

Your article doesn't discount supply and demand and states there is a shortfall of oil.

[boutons_deux]

there was no shortage of oil in mid 2008, with barrel = $148.

[Wild Cobra]

there was no shortage of oil in mid 2008, with barrel = $148.

This wasn't a shortfall?

IEA Oil Market Report data shows world oil supply at 80.71 mb/d Jan.07 and 82.67 mb/d Jan.08. That is a shortfall in Jan.07 of 5.19 mb/d and for Jan.08 of 3.93 mb/d.

OK, I understand. You are a product of the Department of Education's new math programs.

[boutons_deux]

we're talking about spring/summer 08, when oil was up to $148, not Jan 08, not 07.

[Wild Cobra]

there was no shortage of oil in mid 2008, with barrel = $148.

That may be true, but how many months does it take to ship the oil to market? Once the shortage was over, the price dropped in short order.



Supply vs. demand can make a huge difference in a commodity pricing that has little room for supply shortages.

[boutons_deux]

You're spinning bullsit, as always.

speculators and traders don't take delivery, so delivery time, pump to delivery is completely irrelevant.

there was no shortage in 08, as numerous sources said at the time. The 08 price rise was pure speculation and market gaming.