The Young Turks

I think most of the talk of speculation is due to the psychology of looking for someone to blame, which I think is mostly rooted in the need to have some control over the situation. If someone else is to blame for the problem, then at least it means that this isn't permanent, and the problem could be corrected with prosecution, legislation, etc. If, on the other hand, we're dealing with a diminishing resource that's just going to get more expensive... well, that means change.

That said, I also think that there are too many ways to leverage small amounts of money into high-risk speculation in the oil markets, which should be more regulated. Is that causing the sudden rise? Partially. I think speculation is anywhere from 10% to 30% of the overhead cost right now, but I just don't know.

I figured this was coming many years ago. We bought hybrids and insulated our house. The human race is going to run out of oil, and it's going to be in my lifetime. Better get used to it.

If it were "speculation" there's no way it could go on this long.  Someone, somewhere would start dumping it at a lower price to stiff the competition and that would be the end of that.  We're simply at that point where world production can barely sustain world demand.  That's why "speculators" are keeping the prices high.  No one really knows anything except that it's not going down to a significant degree, probably ever again.

I think from here on out we'll see a bit of a stair-step pattern.  Prices will rise and demand will fall off somewhat and then prices will descend slightly.  Then demand will rise again and prices will follow it up.  It will continue this pattern until something creates a real honest-to-God shortage.  Then it will spike off the chart.  

If there is a bad hurricane in the Gulf of Mexico look for serious price spikes.   Specifically, if a large storm were to strike Port Fourchon directly, which is due south of the center of Lake Pontchartrain, the shit would really hit the proverbial fan.  Then the nation would fully understand why Louisiana is so jittery about coastal erosion. 

Also, if I were the Saudis, I'd be doubling and tripling security on their production and transportation facilities. If ever there were a ripe time for a terrorist strike against Saudi production,  this is it.  I hope they've got their eyes, ears and noses wide open.

According to latest EIA figures, oil consumption worldwide went down last year from 2006:

 mbpd:

2006:84,726,000

2007:83,980,000

net:-746,000

Supply and Demand?

It is obvious that it is due to financial speculation, oil and other commodities (remember all sorts of commodities not just oil) are facing huge inflationary pressures that nothing, or little to do with "fundamentals". Prices for goods do not increase at these levels with a clear scarcity of goods, like a famine or oil supply-side shock.

To quote:

"Yet Big Oil has been very reluctant to invest in major exploration projects or additional refining capacity, fearing that prices will drop as the economy slows in
the next few years. Since 2005, the big five have handed back $170 billion to their shareholders through share buy-backs rather than invest these profits in more
capacity - or renewable energy sources."
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"While low interest rates have reduced the return from some other financial assets, the rise in crude oil and other commodity prices offer the prospect of big gains from commodity futures."
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Speculators, on the other hand, treat commodities as a financial asset. They buy futures on the expectation that, on the due date, the consignment will be worth more than they actually paid for it under the future contract, so they can sell it at a profit. Even if the price difference is relatively small, speculators can make big profits if they trade on a large scale.
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The capital flowing into major commodity funds shot up from $13 billion in 2003 to $260 billion today. Not surprisingly, hedge funds (unregulated, private clubs of
hyper-rich speculators) and investment banks are involved, using huge sums of borrowed cash to speculate in futures and other complex financial instruments,
such as options and swaps.
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In 2000, the US government, in response to lobbying by energy traders like Enron, relaxed the regulations on trading in commodity markets. Since then, there has
been a six-fold surge in trading volume. "Over the last five years, investors have become such a force on commodity markets that their appetite for oil contracts has been equal to China's increase in demand over the same period, said a hedge fund manager who testified before Congress ... last month..." (Washington Post, 6
June 2008)
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Source: Oil price shock - the chaos of capitalism: Lynn Walsh

Blog: http://perspectivos.blogspo t.com/

Hey alphasigmookie,

I am not an economist but my take on it is that's is probably over-speculation at this point with retirement funds going to oil instead of real estate. However, in the long run, I think it's useful to see this as a warning. A second warning since the oil crisis of the late 70's, which was also not fundamentals per se: the supply did drop due to a political move by the oil-producing countries. While I may agree that some drilling (including domestic where it makes sense, i.e. not ANWR) could help for now, it's just a mid-term solution at best and we need to think of what's next. I am however an engineer and my take on *that* is that we should go for the solutions we know work: nuclear and photovoltaic solar while exploring other things that may or may not work such as algae-produced hydrocarbons and even fusion.

I really think this is something conservatives and liberals can get together on. One of my conservatives friends was making fun of my hybrid car but then had to admit than even if you don't believe in anthropogenic global warming, we can all agree that reducing dependence on foreign oil would be good for this country overall. 

Best,

Irrational exuberance comes to mind, probably a bit of both I would think. The speculators feed off the reports that show lower than expected stocks , whatever, that in turn drive more speculation raising the price...

The only advice I'll ever give you is ignore Ken, he predicted that oil would be 20$ a barrel again.

However, I have been getting a lot of calls and emails from "investment brokers" selling oil futures in one form or another. Most are legitimate , registered dealers. I think the conventional wisdom is that when the hype gets down to this level, meaning poor slobs like me, its probably over.

I have also be seeing a few whispers about an "oil" bubble..Best guesses from some of the "gurus" are a fall back to the 80-90 range. Some even called 60$

However, one hurricane or Iranian attack could change all of that. 

but I play one on message boards, and the main reason oil is so high is that we have a weak dollar policy

I can only Hope (&Change) that Obama will have the foresight to reverse this trend.  Maybe he'll get Robert Reich or some other wicked smaht guy on his team of economic advisors.