$5 gas and $150 oil a done deal (government, crisis, increase, exam)

[chuck22b]

Originally Posted by Mathguy

Chuck22b, cherry picking a narrow range of data ("since may") is not generally accepted as being a wise analytical process.

In simple terms...if you buy a barrel of oil from some guy in Canada he wants $137 Canadian which is about $137 US. If the exchange rates were back where they used to be...you would only need to hand him maybe $98 US.

I fully accept that speculation and supply/demand and even other issues have contributed to getting oil up to near $100.

Yea, I was using the year to show that in spite of USDX leveling off in some areas, and going up currently.. that it had negligible affects on the price of oil. The people that subscribe to the dollar valuation theory, used the exact same charts I used will say that there is a high reverse correlation between the two graphs (a few months ago)... but the strong correlation has dropped considerably as of late.

Your example gave a 40%... currency effect. I agree with you guys that currency has its effect on oil... but not an over 100% affect. Oil has jumped over 120% from last year ~$60.

Maybe that's why the Saudi's say around ~80... since 60 * 1.4 = $84

[lchoro]

Originally Posted by Philip T

If you like the charts and pictures version, it is covered over on The Oil Drum >>>

The Oil Drum | The devil is in the production details of Saudi Arabia

AND

The Oil Drum: Europe | Saudis announce oil production increases...again...and again...and again...

Even if they can produce more oil, it's not a given that they can increase exports from the Middle East. The fast-rising price of crude is creating an economic boom in the OPEC countries that necessitates more crude oil be used locally.

Oil's Creative Destruction

According to Fatih Birol, chief economist at the International Energy Agency (IEA), the rising demand in the Gulf is second only to that of India and China, and it will increase in the future. Edward Morse, chief energy economist at Lehman Brothers, has stated that at least 1 million barrels a day did not reach world markets last summer because of rising consumption among energy producing nations, and the situation will repeat itself this summer.

Additionally, as demand increases and aging oilfields produce less, some major oil-exporting countries are switching from being net exporters of oil to net importers. Two well-known examples are Indonesia and Great Britain. In fact, Indonesia has recently announced it is quitting the ranks of OPEC. Algeria, Malaysia, Mexico, and Iran appear to be on this path as well. This scenario may even offset planned Saudi increases in spare capacity, according to Amy Myers Jaffe, an oil expert at Rice University in Houston, Texas, U.S.

The Real World: Oil's Creative Destruction - Middle East Times

[valleys_of_hills]

All this crying about "speculators" is probably just people living in denial. They cannot accept the idea that oil is going to get more and more expensive. Oblivious to the evidence that we're at or near a peak in oil production (or possibly just passed it a few years ago), while demand is rapidly increasing.

Learn some basics about economics and securities markets. The "greed" explanation for oil prices is nonsense. Investors and traders simply buy when they think the price is too low, and sell when they think it's too high. Why would they buy like mad to drive up the price, if it's going to go back down? They would all lose an obscene amount of money, and wouldn't be working in that field any more. People will say "greed" to explain/blame anything they dislike in the economy.

[total_genius]

America uses 25% of the World's Oil and China uses 2% (India 1%). So even if China and India's demand doubled in the last couple years it does not justify a doubling of the cost of a barrel of oil.

Speculators doubled the cost of Electricity in CA a few years ago. Everyone thought it was just increased demand until they found out it was just the Enron Traders manipulating the market.

California electricity crisis - Wikipedia, the free encyclopedia

[chuck22b]

Originally Posted by total_genius

America uses 25% of the World's Oil and China uses 2% (India 1%). So even if China and India's demand doubled in the last couple years it does not justify a doubling of the cost of a barrel of oil.

Speculators doubled the cost of Electricity in CA a few years ago. Everyone thought it was just increased demand until they found out it was just the Enron Traders manipulating the market.

California electricity crisis - Wikipedia, the free encyclopedia

Thank you total_genius.

One of the main arguments that the "extra" run up isn't caused by speculators is that there isn't a surplus of oil lying around.

The logic goes:
If there is speculation, why isn't there a surplus on the market (because speculation would cause oil to flood into the market)?

This logic is pretty flawed. Like electricity, oil is a fairly inelastic good... and just because you raise prices up 120+% doesn't mean it'll vanquish the demand in oil (that's probably one of the main reasons why the speculators are betting on it).

Yes, there is a limited amount of Oil out there, and a limited amount of production. We ALL know that and have known that for YEARs. But the problem is, is that instead of a natural price equilibrium based on the supply (producer) and consumption (consumer)... we have a third party abusing the nature of the Oil markets (ie, inelastic demand, fairly constant /diminishing supply). That is the main argument people have that speculation has unjustly increased the price of Oil. We aren't arguing that Oil shouldn't be 40-60% higher than last year ($70-$85) because of inflation, supply, social disruption, etc.... we're arguing that it shouldn't be $130+ (120+% increase).

House panel told curbing speculation could cut prices - Jun. 23, 2008

Basically here is a very simplistic picture...
Let's say there is five loafs of bread, and five people.
The rich guy then hoards all of the bread and charges triple for them.
The poor guys have to eat, so they pay the price.
The rich guy makes lots of money (... ie Greed).
The poor guy runs out of money and can no longer buy the bread.

Scenario 1: poor guys beat up the rich guys and steals the bread
Scenario 2: rich guys lower the price of bread and maintains the original equilibrium.

Either way, the current prices aren't sustainable. There's more poor guys. (Looked at the news lately... there are riots and social unrest throughout the world).

-chuck22b

[Philip T]

Originally Posted by total_genius

America uses 25% of the World's Oil and China uses 2% (India 1%). So even if China and India's demand doubled in the last couple years it does not justify a doubling of the cost of a barrel of oil.

Speculators doubled the cost of Electricity in CA a few years ago. Everyone thought it was just increased demand until they found out it was just the Enron Traders manipulating the market.

California electricity crisis - Wikipedia, the free encyclopedia

Ok, since you like numbers . . . let's try it this way.

If demand year-to-year is 1% over the supply, what is the price (%) compared to a year ago of that final missing 1%?

The answer is of course it could be infinite, if things were fully and totally inelastic. In real practice, it looks like in the oil and energy markets the answer is 20%.

So if demand goes up just 1% or supply goes down 1%, then the price will go up 20%.

But here is the good part -- if the US could ever get past cry-baby mode, and STOP USING the stuff, the reverse is also true. A surplus -- even a small percentage surplus will tank the market.

It is and always was under our own control. We are just too stupid to figure that out.

[chuck22b]

Originally Posted by valleys_of_hills

All this crying about "speculators" is probably just people living in denial. They cannot accept the idea that oil is going to get more and more expensive. Oblivious to the evidence that we're at or near a peak in oil production (or possibly just passed it a few years ago), while demand is rapidly increasing.

Learn some basics about economics and securities markets. The "greed" explanation for oil prices is nonsense. Investors and traders simply buy when they think the price is too low, and sell when they think it's too high. Why would they buy like mad to drive up the price, if it's going to go back down? They would all lose an obscene amount of money, and wouldn't be working in that field any more. People will say "greed" to explain/blame anything they dislike in the economy.

Your assuming investors invest logically and are rational at all times based on a purely efficient market. Investors have bidded up markets before (don't even have to mention which ones since you already know)... and will always do so in the future.

Your also assuming a natural market at equilibrium... Since Investors have fewer options to place their investments today (S&P -10+% in one year) because of the slowing economy, etc. and are "afraid"... they see Oil and other commodities as safe bets. When markets become "emotional" than the normally efficient markets are thrown out the door. We probably didn't see the commodities run up as much in the past because the Commodity Futures Modernization Act of 2000 opened the door. And investors since then were too busy running up Housing stock.

Sadly the investors don't understand the 3-5% short term gains from investing in oil now, get quickly recouped with the extra fuel surcharges on food and other economic and related commodities.

-chuck22b

[chuck22b]

Originally Posted by Philip T

Ok, since you like numbers . . . let's try it this way.

If demand year-to-year is 1% over the supply, what is the price (%) compared to a year ago of that final missing 1%?

The answer is of course it could be infinite, if things were fully and totally inelastic. In real practice, it looks like in the oil and energy markets the answer is 20%.

So if demand goes up just 1% or supply goes down 1%, then the price will go up 20%.

But here is the good part -- if the US could ever get past cry-baby mode, and STOP USING the stuff, the reverse is also true. A surplus -- even a small percentage surplus will tank the market.

It is and always was under our own control. We are just too stupid to figure that out.

Hi Philip T,
We know that a reduction in use is the only way "we" the people can truly get out of this cycle... and we have... we've driven less miles and consumed a lot less so far this year than before. The problem is is that we also would like to keep our jobs... and do not want the Oil markets to tank the economy with all the fuel surcharges... etc. After all, even if there wasn't ANY speculation... the natural course of the Oil market is the weening off of the product. Oil prices... as we all pretty much agree will always go up.. meanwhile alternative sources are only getting cheaper. We don't need speculation to make it even harder on us as it already is. And, inelastic markets don't always stay inelastic... they're just inelastic because they're more sticky.

-chuck22b

[k374]

hopefully oil will not be bid up to the ridiculous highs that housing experienced!

[Lakewooder]

Oil $10 away..