The thing we must consider is the world economy is improving, demand in other areas of the world is rising, and speculators are taking advantage of the situation in the Middle East again to boost profits for Wall Street. In a report last week in Bloomberg Business Week it is considered that oil speculators have already priced in a war with Iran.Most oil analysts will point out that more than half of the spike in oil pricing is due to speculators, and more specifically, noncommercial users. Those noncommercial users consist of investors, many of which are from Wall Street who buy up futures contracts not because they will use the oil, but for an investment and are betting that the price will go up. So far the bets are paying off, thanks primarily to themselves.
According to the report in Bloomberg:
With 76% of the price of gas being attributed to the cost of crude oil, this is why the prices at the pump continue to rise, not because of President Obama. It is becoming the new ‘bubble’ for investors apparently. After they priced many out of their homes for their own greed and profit, apparently now they want to do the same with oil and gas prices.
“Since October, money managers have bought the equivalent of 372 million barrels of oil through a variety of futures contracts, essentially doubling their oil exposure. That includes contracts for West Texas Intermediate crude traded on the New York Mercantile Exchange (CME) and the Atlanta-based Intercontinental Exchange, known as ICE. It also includes contracts for Brent crude, gas and heating oil, and what’s known as RBOB gasoline: stocks of refined gasoline that are ready to be blended into the various grades of gasoline used in the U.S.
According to Tim Evans, an oil analyst with Citigroup (C), money managers now hold a record net long exposure to oil through 638,774 futures contracts, which at 1,000 barrels per contract equates to about 638.8 million barrels of oil. “That’s about 290 days’ worth of Iranian oil exports,” says Evans. “Which implies that we’ve already priced in a nine-month outage from Iran.”
In a report in the Examiner, they consider whether or not higher gas prices are because of Libya, or because of wild oil speculation.
“There is a real debate about whether this kind of speculation is healthy for any economy. Some call oil speculation an “artificial market” since the prices are not set by supply and demand of the producers and consumers, but instead set by the speculators who are buying a future supply of oil based on some presumed demand in the future. From July of 2004 to July of 2008 the price of a barrel of oil went from $31.61 to $137.11. The price of gasoline went from $1.93 per gallon to $4.09. These increased prices were almost entirely attributable to speculation. The supply of oil and gas did not triple over the time period. The demand from consumers certainly did not triple as the economy actually slowed down over that time period.
There is a great deal of evidence that the speculation on Libya may be based on overblown fears to say the least. Libya produces about 1.6 million barrels of oil per day, which sounds like a great deal until one realizes that this constitutes only 2% of the total global output. In addition, 85% of the oil Libya produces goes to Europe, not the United States. Both President Gaddafi and the rebels have pledged not to destroy the oil facilities in the country. According to the worst-case estimates, Libya’s production has gone down by about 50% since the revolts in that country. Saudi Arabia has promised to make up for what oil production is lost in Libya, and as the largest producer in the world the Saudis are more than capable of fulfilling that promise. Despite these facts, the trouble in a country which produces 2% of the world’s oil has managed to increase the price of gas in America by 11%.”
Another point to consider that we are reaching peak oil, if we haven’t passed it already, and that cheap oil and gas prices are forever gone. However, speculation and peak oil have nothing to do with each other, and most experts in the field confirm that it is pure speculation that now drives the price of oil, not supply and demand. In fact, in Energy Tomorrow, in the United States we are now producing more oil than we use, so we are exporting the stuff!
From our friends at Common Dreams who refer to this as The Gas Wars, it is fueling cries to drill by the right. Of course they always do that, and just like Newt can promise us $2.50 a gallon for gas which is a big fat lie! However, our friends in the right wing never seem to blame or become upset with speculators now do they? Do yourselves, and your country a favor, in the upcoming elections don’t base your vote on high or low oil and gas prices, but on the candidates as they have no control whatsoever over the price of gas, however they can exercise some degree of control over speculators who artificially raise prices to gouge consumers and fuel their own greed. For those from the left, at least they are making attempts to reign in these profiteers and curb speculation in oil and gas prices. Let us use our heads, and not our misguided anger when we vote!