Key point:
"Meanwhile, Harvard’s Jeffrey Frankel, has argued for the idea that speculation is behind the run-up in price. He says that such behavior is due to the sharp reduction in interest rates by the U.S. Federal Reserve. Low rates encourage commodity stockpiling, he says, by making it less attractive to sell commodities and put the proceeds into bonds and other debt instruments.
Critics of Mr. Frankel’s theory, including Paul Krugman, say the expected rise in commodity inventories hasn’t shown up.
Mr. Frankel has acknowledged that, but also notes that perhaps oil producers are leaving those inventories in the ground. That could be one reason why the Saudi king rebuffed President Bush’s request for increased oil production earlier this month."
(Related)
"That would be a reckless game to play, because it could lead to the types of shifts that caused energy prices to drop precipitously in the 1980s, inflicting heavy damage on the Saudi and other OPEC economies. Indeed, the combination of a change in consumer behavior and an economic slowdown that is showing signs of spreading beyond the U.S. may already augur just the kind of sharp drop in prices that occurred back then."
In addition, there is talk from different sources that ExxonMobil is internally preparing for a return of oil prices to the 30-50 per barrel level.
Very interesting.
What do they know that we don't?
Bubba: I'd love to see oil go back to $50 a barrel.
ReplyDeleteI did hear some economist on Bloomberg radio saying that they believe this is a real supply and demand issue and that the price is rising due to increased demand.
He made a point that in the US we have several hundred (I forget the exact number) cars per 1,000 people, but in China they have seven cars per 1,000 and India is five cars per 1,000. Since they both combined have six or seven times more people than we do, it stands to reason that their emerging thirst for oil can cause a real spike in demand in the face of no real production increase.
I just happened to be reading today on what kind of oil Iraq has in proven reserves (got off on a tangent) and I just don't know where the supply is going to come from.
Just a few thoughts. I'm definitely not an expert, but I am worried like hell as to what these prices are doing to my family's budget.
"I did hear some economist on Bloomberg radio saying that they believe this is a real supply and demand issue and that the price is rising due to increased demand."
ReplyDeleteI wouldn't advise buying oil futures, however.
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ReplyDeleteThe Hedge fund buyers and speculators understand that India and China will require more and more oil and are thus making their bets on the continuing rising price. Behind that we have George Soros who is intent on sinking the US economy and is backing this speculation thorough his own Hedge Fund companies. Don't look for a decline in price to consumers anytime soon. Once the US economy tanks Soros and the far left wing Dems will be dancing in the street. Their plan for socialism will be completed and this Republic will cease to exist.
ReplyDeleteCongressman Gene Green (D-TX) told CNBC, "We also need more exploration. But we really need to get more oil to the market, particularly from our own country. The best signal we can send to OPEC and anywhere else in the world is maybe not filing a lawsuit against them but actually saying 'we are going to start producing in our own country.'"
ReplyDeleteThe only question left is the one posed to Green by the CNBC anchor: "Can you convince the other wings of your party to think like you do?"
I think we all know the answer to that question-- NO! Their only answer is TAX and MORE TAX.