High Oil Prices Caused by Wall St, Not OPEC
The reason is because high oil prices are being caused by futures traders on Wall Street and other financial markets throughout the world, not by the old-fashioned laws of supply and demand. While oil prices have soared to $130 per barrel, global oil consumption decreased from 87 million barrels per day (bpd) in Q4 2007 to 86 million bpd as of Q2 2008. During this same time period, supply has increased from 85.49 to 86.17 million bpd. According to the laws of supply and demand, prices should have decreased. (See Why Oil Prices Are So High)
When both the stock market and real estate market declined last year, major pension funds and other investors looked for returns in the commodities markets. This caused price increases in commodities futures, which attracted other investors, which is now resulting in a bubble similar to that seen in real estate in 2006. (Source: Der Spiegel, How Speculators Are Causing the Cost of Living to Skyrocket, June 13, 2008)
Saudi Arabia is hoping that their announcement to increase supply will dampen this speculative bubble. If this doesn't work, then expect oil and gas prices to continue to soar...until the bubble pops.
What It Means to You
The good news is that when the bubble pops...and no one knows when that will be...oil, gas and even food prices should start to decline. The bad news is that someone on Wall Street will lose money...and that will affect your investments, your company's pension fund, and the overall economy.The best way to protect yourself is with a diversified portfolio. Also, oil prices will probably never return to $50 a barrel levels, so the more you can conserve energy, the better off you will be financially.
Comments
High oil prices are not the result of ‘Wall St
‘ speculators. Speculators bet on outcomes on a win lose basis! If you speculate on The Giants beating the Jets you may win or you may lose. That is the definition of speculation.
High prices are caused by the industrialization of China, India and the rest of the known world.
Russia has grown rich and regained power because Europeans depend them for their energy. The Democratic party has been instrumental in crippling our sources of all kinds of energy because of the environmental fringe and the frivolous obstructing lawsuits. The historical record is quite clear on this point. All the political HS notwithstanding.