Why oil prices are going up

[Andy823]

NEW YORK (CNN) -- The economy is stumbling, energy supplies are rising, yet oil prices are hitting new records. What's going on here?

Oil's surge to an all-time high of nearly $104 a barrel Monday is the latest evidence that speculative investment flows are driving crude prices more than physical supply and demand for the commodity.

"This has gone beyond reason," said George Littell, an analyst with Groppe, Long and Littell in Houston. He believes oil should be trading in the range of $60 a barrel.

"An awful lot of people with money who don't think much of other financial assets, they want to own commodities instead," said Littell, who has been tracking the energy business since 1966.

Investing in crude futures by those not involved in the oil business has more than doubled since February of 2006, when crude oil traded as low as $58 a barrel, according to data from the Commodities Futures Trading Commission, the agency that oversees futures trading.

The vast majority of players rushing into energy contracts have bet on crude climbing higher. And with shaky stock markets worldwide, debt markets in turmoil and the slump in real estate, commodity markets, particularly energy, have been a relative safe haven.

Furthermore, since oil is traded in dollars, the sinking greenback has provided foreign investors spending euros or yen another reason to invest. Now, even relatively conservative financial advisers are recommending clients put some of their assets into energy.

Again it looks like "greed" is the motivator in the problems we are having in this country. There is more at the link below.


http://money.cnn.com/2008/03/04/markets/oil_speculation/index.htm?postversion=2008030409

[Angela Shelley]

1. The price for a barrel of oil is the same all over the world

... but this is the only country which is suffering from a subprime credit crisis because of it.

Go figure!

[dysfunctional press]

2. how is the price of oil responsible for the subprime credit crisis?

i hadn't heard of that connection before...:shrug:

[Winterblues]

4. Virtually everything in our economy is based on oil

When price of oil goes up so does everything else. Every single thing you buy in America is transported by either truck barge or train and they all require oil to do so. When prices increase so does people buying on credit.

[dysfunctional press]

5. people buying houses they couldn't afford isn't caused by the price of oil.

it's caused by people who are either greedy or stupid getting into situations they don't understand or expect.

[lurky]

3. They mention the falling dollar,

but it doesn't occur to them that this could be what is actually causing the change: That the cost of oil isn't going up so much as the value of the dollar is collapsing. If you buy gas in Euros, GPP, or CAD, I'm guessing you pay roughly the same amount as you paid 3 years ago.

[htuttle]

7. If you've been buying oil with gold, it hasn't really gone up in 50 years or so

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=389&topic_id=2954938

[Festivito]

10. Ding ding ding. ME sets the price off what they want -- gold. /nt

[Warpy]

6. I think we're seeing a speculative bubble in oil prices

as rich old men look for places to put their ill gotten gains. He's right about the $60/bbl price. That's exactly where it should be given the fall in the dollar.

One thing driving the bubble is all Stupid's sabre rattling. The rest of it looks like a futures market bubble. The same thing is happening in other commodities like gold, silver and wheat.

[Andy823]

8. Yes

Those rich old men need to be richer, so they buy up everything they can and jack the price up. I do agree with you, Bush and Cheney have done a lot to get the price of oil up there, and they will be richer in the end for it, I am sure!

[DadOf2LittleAngels]

9. 2 reasons

1) Real price of oil has went up a little
2) The real value of the Dollar has fallen *allot*

[hunter]

11. Oil production has to peak sometime. If not now, later.

Everything I see is consistent with peak oil. As time goes on it costs more to extract oil. That's a simple fact. An early California oil field cost a lot less to develop than some very deep sea Gulf of Mexico field.

The world's oil tap is full open, and as much oil is coming out of it daily as ever will.

Before the peak in oil production a producer might want to undercut their competitor's prices to increase their share of the market. Past the peak there is no incentive to do so even if you have the capacity, and I suspect the big players like Saudi Arabia don't even have the capacity anymore to increase their production.

Barring some worldwide economic catastrophe the price of oil isn't going to fall. From now on it's all about maximizing profits and reducing demand. This demand destruction will be accomplished by rising prices and reduced or even negative economic growth.

Our next President won't be able to do a damned thing about it.

Four years from now the root causes of these high oil prices will be obvious. However it turns out, we won't like the answer.