Oil energy futures speculation drives rising cost

buckeye125 · 06-26-2008, 07:21 PM

Originally Posted by FloggingSully

Prices are determined by supply and demand, people can argue about speculation all they want, but if demand didn't exist at those prices they wouldn't be that high.

There is a lot of truth in this statement, but you present an over-simplified explanation.

In 2003, before bombing even began over Baghdad, oil was selling at nearly $30 a barrel. It's now over $135 a barrel. More than a natural resource, oil has become a financial asset in itself, like stocks, bonds, real estate or gold. And like many assets, as long as it appreciates in value it will attract speculators who trade in oil futures, and in the absence of any real regulation, will push the price as far as the market will bear (and, after all, isn't that what a 'free market' means?).

One industry observer, Daniel Yergin, of the Cambridge Energy Research Associates, noted, "People are hedging against a falling dollar by buying oil and that hits the price. The most important thing that could be done would be for the dollar to rebound. And that is nothing you can legislate. " Moreover, some industry experts have written that speculation hikes prices from 20 to 40%! That means that the price of a barrel of oil is really closer to $54 than $135, and thus that the price per gallon should be closer to $2.70.

Cyclone85 · 06-26-2008, 07:33 PM

Yes, I'm sure the ultra-powerful economies of India and China will easily be able to handle much higher oil prices.

Originally Posted by Big

In the end I think both issues are driving up prices but I bet oil prices would be below $100 per barrel without specualtion. They would be somewhere around $60-70 per barrel. True Americans can drive less and speculation would decreae but Chna and India make sure that doesn't happen.

fj1200 · 06-26-2008, 08:03 PM

Originally Posted by Cyclone85

Yes, I'm sure the ultra-powerful economies of India and China will easily be able to handle much higher oil prices.

As penalty for their substantial contribution to the cost they should

Big · 06-26-2008, 08:32 PM

Originally Posted by Cyclone85

Yes, I'm sure the ultra-powerful economies of India and China will easily be able to handle much higher oil prices.

They sure will for 3 reasons: their government subsidizes gas, they have more and more rich people, and they are ok with driving mopeds, motorcycles and weak 4 cylinder engine cars that all get more gas per gallon. They are ok with driving mopeds. Are Americans?

Cyclone85 · 06-26-2008, 09:07 PM

LOL...I wished I could talk like that on the fly during oral debates! ;o) It takes too much thinking!

Originally Posted by fj1200

As penalty for their substantial contribution to the cost they should

fj1200 · 06-26-2008, 09:46 PM

Originally Posted by Big

They sure will for 3 reasons: their government subsidizes gas, they have more and more rich people, and they are ok with driving mopeds, motorcycles and weak 4 cylinder engine cars that all get more gas per gallon. They are ok with driving mopeds. Are Americans?

American GDP is 40% larger than the inflated claims of both China and India combined. American per capita income is 9 times China and 18 times India. China's oil consumption is currently on a much steeper upward trajectory than the US. The largest offender of oil consumption (cars) are increasing by thousands per day in China, their society wants to modernize not go back to bikes and mopeds.

Big · 06-26-2008, 09:57 PM

You forgot one important number: their populations combined are almost 10 times larger than America's. They can have as many rich people as does America and still have many poor people

Also, you forget that they can afford oil because everything else in that country is cheaper than in America.

GDP here is worthless because they are paying 10 times less for many things than do Americans so well off people have more money to buy gas.

fj1200 · 06-26-2008, 10:08 PM

Originally Posted by Big

You forgot one important number: their populations combined are almost 10 times larger than America's. They can have as many rich people as does America and still have many poor people

Also, you forget that they can afford oil because everything else in that country is cheaper than in America.

GDP here is worthless because they are paying 10 times less for many things than do Americans so well off people have more money to buy gas.

I don't see how having many poor people is an economic advantage.

But gas isn't cheaper and they only make 1/9th that Americans make.

GDP is a measure of National fiscal strength. Fiscal strength certainly impacts the ability to absorb energy costs.

Big · 06-26-2008, 10:30 PM

Look, even if 1/5 of people in China can afford cars and gas, that is still 300 million people driving. Also, those well off Chinese pay 10 times less for most goods than Americans.

Say a person that makes $30K in China is considered well off even though in America that is almost povety level. That person in China has more money than $30K making Americans because he pays 10 times less than Americans for everything else. Many people in China live on $2 per day.

Big · 06-26-2008, 10:33 PM

Many Chinese are so poor that a moped or a motocycle is a step up for them. Millions in China still live in caves.

Oil energy futures speculation drives rising cost

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