Reply #48: Speculation (at least in the US) can be regulated [View All]

[Gman]

Speculation is one of the biggest drivers of oil prices along with a devalued dollar. Supply and demand are in there but the true demand price is distorted because of the speculation. Oil went from $145 - $35 a barrel at the end of 08. Oil dropped to $9 a barrel in the 80's. So the myth that oil prices are bound to increase is dishonest at best and bogus at worst. The big oil companies do their own speculating to drive up prices and they do it along with Saudi Arabia and other OPEC countries. At least that much we know from 2007-2008. This should be considered a national security issue and treated accordingly because oil is the lifeblood of the economy. Any actions by individuals or companies that cause the price of oil to go up should be considered a threat to national security.

Peak oil may or may not be here but supply and demand should be the primary driver. We were told in 07-08 that China was causing a huge shortage which was why oil prices were rising so high. Then we got news of some speculator that was extremely proud of himself when he did the trades that caused oil to rise above $100 a barrel. When it reached $145 we knew it was speculators causing that price because the world demand, while declining severely due to economic crashing in 08, was not supporting anywhere near that price. But the speculators were driving up prices that actually caused a bubble that busted.

So we know speculators manipulate the price of oil and there's no reason to think it's not happening again. Obama wanted to impose a condition on oil trades that you had to intend to physically take possession of the oil if you do the trade. Later they gave some (IMHO) lame excuse why they wouldn't do it which included the speculation done by international oil companies and OPEC nations. Probably the oil lobby at work.

Speculating and subsequently taking possession of oil or fuel is not a bad thing. That's why SW Airlines had relatively dirt cheap prices for flying in 08 as they were using fuel that they paid a cheaper price for by speculating. But the speculators have no intention of taking possession of the oil. It's just their arbitrage they are interested in. Of course when the bust happened they had a bad quarter where they lost money for the first time ever. They got stuck with more expensive fuel, but also air travel declined dramatically.

Sorry, but it is very naive and simplistic to say it's all supply and demand.