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.
