John McCain blames the run-up in oil prices on “Reckless Wagering”. Barack Obama is proposing legislation to stop the fuel price rise driven by “a few energy lobbyists and speculators.” The Wall Street Journal has a different theory, though, that defies the dogma of speculation.
I agree with the WSJ.
I have been studying foreign exchange markets for the past few months. In intra-day and inter-day trading, you can see the swings caused by speculation. There are even some longer-term trends fueled by speculation. However, these trends are tiny compared to the money policy embraced by a nation and its central banks. These central banks are the engine driving the price of money around the world; speculators are akin to a handful of horses, tied to the engine, trying to hold it back.
They have some small effect, but the train moves on where it is going, directed by the money-engineers driving it in response to expected conditions ahead.
The historic plunge of the value of the dollar in the past two years has not been fueled by speculation. It has been fueled by an intentional weak-dollar policy on the part of a Federal Reserve trying to blunt the effect of crushing national debt and fight inevitable inflation.
So, too, is the case with oil prices. That weak-dollar strategy turned investors to commodities, adding a few extra horses to try to hold that locomotive back. But, by and large, the prices are rising because demand is overwhelming supply.
Unless some new facts come to light, it certainly appears that we are finally approaching the summit of Peak Oil: global demand is outstripping diminishing easy supply. I caveat “easy” supply, because it seems to be true there is plenty of oil left in the world, but it is much harder to get to than the easy oil-strikes of the past century. And I fully expect that we’ll see quite a few advances in oil extraction in the next ten to twenty years that will help keep pace with peak oil demands, at least for a while.
On the plus side, it appears that higher energy prices have begun to highlight the false economy of moving manufacturing jobs overseas, and high shipping costs are bringing some jobs back to the USA.
Energy costs are expensive enough that I’m seeing the impact in my monthly budget of paying three times as much for gasoline as when I made that budget. I cannot wait for the day that UltraMegaCorp finishes the new data center planned just 8 miles from my house, and I can begin to ride my bike to work on a regular basis. In fact, I think the rise in fuel prices may be a long-term net win for the USA, but the cost to my wallet gives me pause about taking one for the team.
Speculators Not Responsible For Oil Prices
“On the other hand, inflation does lead to a misallocation of resources, so it’s not surprising that the Federal Reserve’s weak dollar policy has driven investors to commodities to protect themselves. Loose monetary policy has caused price jumps across nearly all commodities, including surges in grains and precious and base metals. The Fed’s rate-cut bender is the most important reason oil is up so sharply since last August.” WS Journal
“However, these trends are tiny compared to the money policy embraced by a nation and its central banks. These central banks are the engine driving the price of money around the world; speculators are akin to a handful of horses, tied to the engine, trying to hold it back.”
The Federal Reserve and other Central banks are carefully orchestrating assuming you and the Wall Street Journal to be correct the whole thing.
Because oil is a commodity and delivery and acceptance must take place the market forces of supply and demand will eventually reflect the true market price of the product. The demand for oil being relatively inelastic rather than perfectly inelastic, a slight decrease in consumption because of increase of price across the board will eventually fill up their capacity to store the oil.
Government intervention would only serve the interest of the speculators by protecting them from large price swings that might adversely impact their position, long or short.
Amen!
Amen! Preach on, brother.
I’ve come around to Daniel’s position on this, too. If you look at historical oil prices, we’ve been in a “bubble” of unusually low prices for the last twenty years, largely due to manipulation of oil prices through the Strategic Reserve and foreign policy manipulation. We’re back at market rate, comparable to the prices in 1970.
—
Matthew P. Barnson
My only issue..
The thing that gets me, and sticks in my subconsicous craw..
1) that gas prices are driven by what people will pay.. but everybody needs to drive.
2) That Gas Stations in a given area will move the price to be close to one another.
3) The “reason” for the hight price of gas is that “oil is hard to get”
4) Despite this, every year seems to be a RECORD year for profits for the oil companies.
My problem is when everybody needs to buy something, companies look to each other to set prices, and the American consumer suffers while the companies get record profit.
But, again, not a fan of corporations.
NVZ: NINJAS VS ZOMBIES – THE MOVIE – http://www.nvzmovie.com THE OFFICIAL JUSTIN TIMPANE WEBSITE – http://www.timpane.com
Not really
Perhaps there needs to be a paradigm shift in the USA about the statement “everybody needs to drive”. If gas gets to $10/gallon, can you find an alternative to driving then? $20/gallon?
Isn’t this competition? If one goes lower, they all go lower. There are laws to prevent them from going too much higher, as well as people driving a little further away to get a lower price.
The oil companies are making record profits because we’re in a market correction. As prices surge higher now to where they belong, the oil companies make money because they bought the oil at lower prices. Your energy prices just shot up because the gov’t regulated the cost to a false level below the market level. Then when they removed the regulation, the prices shot up al at once, which is a big ouch to the wallet.
Now, the gov’t manipulated the price of oil/gas to a false level for the past 20 years, probably as a result of the oil crisis in the 1970s. Now, the prices are correcting themselves, and quite quickly, to where they should be, and again, it hurts the ol’ wallet. If energy and oil pricing has been allowed to set itself due to market pressures, we’d have been able to absorb the increases gradually. But your politicians who run the gov’t are willing to force prices lower for a while (read: while they’re in office) to make things look good and keep them in office.
Then when prices rebound, they point fingers to misdirect the blame from themselves.
The gov’t should protect the consumer from business taking advantage of them, but the gov’t should stay out of the way of basic economics. Don’t hate the companies for taking advantages of the stupid policies of the gov’t.
My $.02 Weed
Corrections…
Fixed that for you. We are just now hitting the top part of the bell curve for Peak Oil, with demand just barely out-stripping supply. It will get much worse over the next thirty years.
I think it’s interesting that some of the effects of cheap oil have been to drive globalization due to cheap shipping and discourage domestic oil production in the US due to reduced profit margins. Neither of these are conducive to US interests.
There is one net effect of cheap oil that may have been seen as a “win” for politicians: the US Military is the largest consumer of oil on the planet. This includes if you add every single non-military American together and compare us as a body to the military usage. Cheap oil kept war cheap. With oil expensive, war will cost much more.
—
Matthew P. Barnson
Military/Industry complex
I really want to see the movie “Why We Fight”. It’s supposed to be really eye-opening about how the military-industry complex has taken over the gov’t & economy in the US. Has anyone here seen it?
Regardless of my earlier misgivings about Obama, I’ll still probably vote for him simply because even though that both candidates will spend may too much of my money, at least Obama will spend too much of it here in the US, as opposed to in overseas wars.
My $.02 Weed
Course correction
The problem is this (and why we need some government help). We didn’t know this was the case. Sure, if the Government meddled, fine. But now we’re in this situation where people live far away form where they work (and can’t sell their homes to change that fact) – and our infrastructure is built around the idea of driving to your job.
So, even if this is the evening out of the situation, if we get to $10 a gallon.. its going to be calamity for a hell of a lot of people. Not us, maybe. We have computers and internet, and are doing okay, mostly.. but for many who are less well off – its going to be a situation that is unsustainable. People won’t be able to go to work, kids will starve, crime will rise – we’re talking a new depression.. and that is as dangerous as any foreign threat.
NVZ: NINJAS VS ZOMBIES – THE MOVIE – http://www.nvzmovie.com THE OFFICIAL JUSTIN TIMPANE WEBSITE – http://www.timpane.com
The Circle of Life and Oil
Quote from the Peak Oil link:
So now we’re taking the oil from then, and burning it, thereby increasing the atmosphere’s content of….carbon dioxide.
Maybe if we burn enough oil, we’ll create conditions suitable for the recreation of petroleum? 😉 And the next dominant species in 300 millions years can repeat the cycle…Perhaps the dinosaurs has problems with global cooling due to their increased CO2 production and that’s why they are extinct?
*hee hee*
My $.02 Weed
Interesting thought…
Interesting thought. A number of Russian engineers have an alternate model for how oil is produced via pressure and the presence of certain elements, rather than via the degradation of biological tissue. Their model might work, too, but like the “fossil fuel” model, the process takes millions of years.
If the Russian engineers are right, well, that gives us a much better outlook for future oil drilling in around 100 million years. I’ll pencil the date in my calendar.
—
Matthew P. Barnson
People
The problem I have with a lot of these points of view is that they are anthropologic, or economic, or whatever.
We are talking about people. People alive today, who will suffer. I think the “well this is what is happening” approach is not geared toward “How do we decrease the suffering of the people” – and what really is th epoint of knowledge if it is not used to better our situation.
So I propose this question – what can or should be done to minimize th effects for the next 20 years, while also giving us a rosier outlook in the long term as well.
NVZ: NINJAS VS ZOMBIES – THE MOVIE – http://www.nvzmovie.com THE OFFICIAL JUSTIN TIMPANE WEBSITE – http://www.timpane.com
Two words
Two words: sustainable energy.
More nuclear reactors. Hell, build one in my back yard. I’m all for it. It’s the cleanest, safest, most efficient and environmentally-friendly method of electricity production we have. Better yet, let’s jump head-first into “community reactors”: safe, stable sources of heat that cost less than a million dollars, around which you build turbines or other heat-driven engines to provide electricity for up to 30,000 homes. We have the tech, but a mountain of regulation that prevents its implementation.
More solar energy. Let’s convert huge chunks of our nearly-uninhabitable deserts into a variety of solar projects.
More wind energy. Utah has an almost constant 5-to-15MPH wind, and only three publicly-owned energy-producing windmills in the state. Dude.
Now, to tie with sustainable energy, we need to begin leveraging transportation that can make use of it. I use batteries in my model aircraft right now, today, capable of high-amperage, five-minute recharges. Right, exactly, FIVE MINUTES. From empty to full. The complaints about slow recharges of electric vehicles are empty and based on old technology. Leverage safe, effective lithium nanophosphate technology in automobiles, and provide consumers the opportunity to embrace them.
If you take fifteen minutes rather than five minutes on a recharge, the longevity of the battery pack goes up. At fifteen minutes, it’s around 2,000 cycles before it starts to sag; at five minutes, it’s around 1,000 cycles. We’ll need to have bigger batteries than the 2.3Ah cells I’m using in my models, though. Something on the order of 10Ah or more per battery would be ideal.
For the near-term, one simple adjustment would make a huge difference in American consumer consumption of fuel: install MPG gauges in every new car. Let us see exactly how many MPG we’re getting given a certain driving style, and a substantial number will decide to play a new game: instead of racing to the next stoplight, see how high you can make that meter go!
Foremost in reducing our dependence on foreign oil, though, is to stop fighting so many wars in foreign countries. The US military is the world’s largest consumer of foreign oil. Bring the soldiers home, stop being the Team America: World Police, and we’ll reduce worldwide consumption dramatically.
That’s just off the top of my head. There’s more, but it’s probably a topic for another blog.
—
Matthew P. Barnson
Amen, brother
When the gov’t truly starts working for the people, instead of for itself and business while masquerading as for the people.
The $120 billion that has gone into Iraq would have be much better spent building an infrastructure for new energy sources in America. It’s such a paradigm shift, such a moment of inertia, that the gov’t will have to dump large sums of $$$ to kick start it. unfortunately, we’re seriously in debt now to make a patch of desert in Iraq unsafe for everybody.
When gov’t tell big oil “screw you, we’re moving to the next energy source”, then things will get better.
My $.02 Weed
We The People
We, the people, are the government. And I’m pretty sure that we’ll only send that unified message the day a gallon of gas costs more than your average citizen can reasonably bear. We’re not nearly there yet. In today’s dollars, I’d guess that number is right around $20 a gallon.
Now time to go back to figuring out my condenser-less air conditioning system for my home. It’s going to be over 100 degrees this weekend, AC is killing me with electric bills.
—
Matthew P. Barnson
Unfortunately, no
Nah, when we get to the boiling point, it’ll be those same energy companies selling us clean energy for their profit as well. Ride oil out as long as they can, they provide a new solution.
My $.02 Weed