After writing last week's entry, I came across an article that described something that has been going on in the marble halls of Wall Street for some time: the run-up of oil prices not by supply and demand economics but by the commodity traders on The Street who, by the mere act of betting on the future price of oil, create a self-fulfilling prophecy. This activity is not new to those who have the power to change policy and regulate these types of activity, yet they do nothing about it. To quote one of the best parts of this article...
After peaking at nearly 9.8 million barrels a day in August 2007, demand for gasoline has fallen steadily to a low of 8.5 million barrels day in February 2010 — a drop of 13 percent. But in the past 12 months, pump prices have increased more than 50 percent and oil prices have more than doubled. “People are using oil as a store of value rather than as a commodity,” Beutel said. “It’s the investors who are buying.”
Reading that should have made your skin crawl, since it is counter to everything we know about price movements, i.e. if demand falls then so does the price. Yet those on The Street once again demonstrate that they don't give a damn about the effect they have on the economy if it means they can make a quick buck.
Do not get me wrong: I do not exonerate the oil companies of their part of this. They have just as much culpability as do the traders I am writing about. But allowing this speculative activity to continue is akin to simply writing the traders a blank check, since what they are doing amounts to printing money.
Here's a message to the U.S. Government: write them a blank check and put a halt to what is happening. The end result from their perspective is the same, but I won't have to cringe anymore when I pull up to the gas pump.
After peaking at nearly 9.8 million barrels a day in August 2007, demand for gasoline has fallen steadily to a low of 8.5 million barrels day in February 2010 — a drop of 13 percent. But in the past 12 months, pump prices have increased more than 50 percent and oil prices have more than doubled. “People are using oil as a store of value rather than as a commodity,” Beutel said. “It’s the investors who are buying.”
Reading that should have made your skin crawl, since it is counter to everything we know about price movements, i.e. if demand falls then so does the price. Yet those on The Street once again demonstrate that they don't give a damn about the effect they have on the economy if it means they can make a quick buck.
Do not get me wrong: I do not exonerate the oil companies of their part of this. They have just as much culpability as do the traders I am writing about. But allowing this speculative activity to continue is akin to simply writing the traders a blank check, since what they are doing amounts to printing money.
Here's a message to the U.S. Government: write them a blank check and put a halt to what is happening. The end result from their perspective is the same, but I won't have to cringe anymore when I pull up to the gas pump.