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Speculating About an Oil "Bubble"

The price of crude oil has tumbled almost $11 a barrel in less than two days and a lot of people are (again) asking: Has it all been a bubble? Is it about to burst? Have prices fallen short of the predictions of the financial analysts who were talking up the idea of $150 or $200 a barrel?

I don't think it's quite that simple. I think that a combination of things are happening to oil prices: an influx of financial players into the market has helped drive up prices, but they wouldn’t have been able to do that in a sustained way if the gap between global production capacity and global oil consumption were not so narrow.

Most economists would disagree. They say that you can’t have a bubble without a build-up in inventories (there has been little evidence of that), and that futures prices are like side bets that don’t affect the real market. A lot of oil analysts, however, say that you can have a bubble in oil just as you had a bubble in tech stocks or housing, and that high futures prices mimic inventory hoarding because on the New York Mercantile Exchange you can take delivery.

Either way, people are looking hard for evidence of changes in supply, demand and inventories. The more we know about that, the better we can judge what’s driving prices.

Here’s what’s been happening in the market yesterday and today, according to Wall Street analysts with whom I’ve talked. The U.S. economy, by far the biggest oil-consuming economy in the world, is faltering and when it falters oil consumption is likely to fall. Federal Reserve chairman Benjamin Bernanke’s downbeat comments yesterday about the economy and the possibility of raising interest rates added to the gloom about the U.S. economic outlook. Weak U.S. demand also helped prompt OPEC to trim its latest forecast of world demand. We tend to talk a lot about rising oil demand in China, but the United States is still the big kid on the block, using two and a half times as much as China.

Today prices got another push downward because the Energy Department’s Energy Information Administration reported that U.S. commercial inventories of crude oil and petroleum products climbed by 7 million barrels last week. One reason: an increase in oil imports, perhaps partly as a result of slightly higher Saudi oil output last month (it takes 45 days for oil to get to the United States from Saudi Arabia). The EIA data also showed that U.S. gasoline demand was down 375,000 barrels a day from the same week a year earlier, continuing a trend of gradually declining U.S. fuel consumption. That comes a day after Mastercard reported that last week’s purchases of gasoline fell 5.2 percent last week compared to a year earlier. It was the twelfth consecutive weekly decline reported by Mastercard.

That doesn’t mean high oil prices are over. U.S. commercial oil inventories are still down 55 million barrels from last year this time.

“We’re at no place to be sitting back in a comfortable recline here,” said Ed Crandell, an oil analyst at Lehman Brothers. The economy could also pick up. Hurricanes could take out some production in the Gulf of Mexico.

But if there is fizz in the price of oil (and it must seem like champagne to those producing it), the realities of supply and demand should ultimately correct that price, just as happened with the recent housing bubble and other bubbles in the past. Just don't ask me when.

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Comments (49)

Kyle:

This article is way off base, but most of the comments are positively inane. Everybody has a right to their own opinion, but not to their own facts. Even those who generally have the facts right have mostly arrived at completely erroneous conclusions.

Before making such certain and impassioned assertions, one should first be sure that you aren't utterly ignorant of the subject matter. In this case, ECON 101 is the prinary prerequisite.

And if you are an adherent to the conspiracy theory of history, do us all a favor and go find something else to do.

If you really seek understanding, here's a few places to begin your education:

http://www.capmag.com/article.asp?ID=5221

http://cafehayek.typepad.com/hayek/2008/06/thoughts-on-oil.html

http://www.theoildrum.com/tag/update

Blowin' bubbles?:

Maybe if:

1. We are in first stage of a global depression.

2. Iraq is pacified and Afghanistan follows suit soon and Iraq fails to explode again after we reduce our troop strength to more meet more urgent need in Afghanistan.

3. The federal deficit is brought under some semblance of control.

4. The nation's current account deficit is transformed into a surplus.

5. The dollar is returned to its earlier value against the Euro.

6.Our strong rate of inflation does not become embedded in minds of Americans.

7. American consumers will continue to conserve energy even as its price begins to drop.

8. The Red China economy suffers a dramatic downturn.

9. Israel decides Iran is no threat and so no need to launch a preemptive strike.

10. Radical Islamic fundamentalists fail to gain power in Pakistan.

11. Osama bin Laden makes peace with the Great Satan.

12. Pelosi and Reid have second thoughts about offshore drilling and opening up ANWR and now support this change in policy.

13. Democrats decide unwise to inflict punitive taxes on American energy producers and to unilaterally alter the terms of offshore lease agreements.

14. Democrats decide they look like fools attempting to hold OPEC members subject to U.S. anti-trust laws.

15. U.S. economy continues to weaken and unemployment increases as Obama or McCain open up U.S. labor markets to unlimited illegals from Mexico and the rest of the world. (Labor rates crushed.)

16. One or more disasters to U.S. airlines due to maintenance cutbacks and extreme efforts to trim costs along with obsolete air control system.

17. The U.S. political system continues to be unable to produce competent leadership.

18. World population ceases to increase.

19. A substitute for chemical fertilizer is discovered soon.

20. The U.S. terminates its tariff on ethanol produced by Brazil.

21.American environmentalists and their supporters with their charming belief in the existence of an easy/economic source of alternative energy if only we have the will to look for it, become realists, and

22. Crude and natural gas are no longer needed as inputs to our petrochemical industry due to Al Gore's "Challenge to America" and consumers agreement to quit using their products after at last recognizing they are responsible for bringing on the energy crisis.

The above are just a short list of the concatenation of fortuitous events (as the fellow used to say) needed to deflate crude and natural gas along with, need one add, the general wellbeing and health of our American industrial society.

OldUncleTom:

Petroleum is a world resource. Congress can no more regulate its price than it can elect a Russian premier. If Congress attempts to regulate the NY Merc, or other onshore trading centers, the oil will move to London, Dubai, Iran, and elsewhere. If the US is offering $150/bbl and the world is paying $160/bbl, guess what? The US will run out of oil, as no one will sell to us.
Now, as for speculators, has anyone noticed that many commodities have experienced spikes in price this year? Most prices are expressed in dollars, and our dollar is not healthy now. That is a factor for a speculator; not only estimating future demand, but estimating the future value of the base currency of trade. My guess is up to 20% of the price increases is based on the perception that the dollar is rapidly losing value and nobody is able to stop the slide.
With the stock market in broad decline, and real estate bottoming out, investors are seeking places to invest for value, and commodities are at least real physical goods. That said, it is probably one of the most pure forms of market in existence. Futures contracts cannot far exceed spot prices in the long run, because deliveries must eventually be made at the then spot price. If I am sitting on October crude at $165, the spot price in October had better be at least that high, or I am a very unhappy investor. Buyers pretty much control the prices at delivery time.
Now, what to do... short term? use less, I do, by quite a bit. Long term? invest in alternatives... on the micro scale, insulate your home better, make sure your next vehicle gets really good mileage, adjust your thermostat; on the macro scale, there are (and will be) many opportunities for growth in new energy technologies, and like it or not, this will be how we live in the future. People make money in bad times too, so why not join them?

O great:

But if there is fizz in the price of oil (and it must seem like champagne to those producing it), the realities of supply and demand should ultimately correct that price, just as happened with the recent housing bubble and other bubbles in the past. Just don't ask me when.

----------------

So let me guess.... We get to bail out all the oil speculators when the bubble bursts as well?!?

shakazulu:

Tom3

When you moved to Parachute Colorado and took a messy job squeezing oil from rocks weren't you speculating that it would be profitable to do so?
Weren't you speculating that the price of oil would always stay high? Not that I blame you if you did. There was a lot of talk like that back then. Just like there was a lot of talk about a new economic paradigm during the height of the tech-stock bubble. Just like underestimating the risk of mortgage lending during the latter stages of a decades long housing price bubble. Every one of those people who mortgaged themselves to the hilt during that time was SPECULATING that the price of housing would continue to rise. We're all speculators Tom3.

nicky:

The oil bubble will not burst however the speculation of it's "potential" demise will keep this gyration on for a long time. Only going into an economic tailspin will there be an awareness of reality or until the public realizes all ramifications that encompass this bubble. Market manipulations of commodities will continue for many years to come and matters may even get worse.

Dimitry:

==INDIA is driving cars that run on COMPRESSED AIR TODAY and the US model coming in 2010 at $18,000 and 95mph, 800 mile range....but this fact ISNT COVERED BY THE MSM so you can see there is a long way to go on getting information - real info not opinion - into the marketplace.

The US needs to be driving compressed air cars because we have the technology TODAY. GM just needs to shut up and license it.==

All right! So...who compresses the gas? Does it provide MORE energy than you put into it? Wow!

I hear the wound-up rubber band technology breakthrogh is just around the corner!

Also, the broccoli organic gas technology is about to make a come back! You don't even need an engine with that one.

SteelyEye:

Dare to dream Steven. Gentlemen, start your Hummers? When are you people going to understand that oil is not like the other 'bubbles'. Energy is the most basic input into the functioning of civilization. If oil use plummets and therefore the price drops it will be because of a catestrophic breakdown of the economy and civilization and/or a drastic population reduction (however that might happen).

Unless it is true that the powers that be are sitting on 10 Saudi-sized oil fields and are just refusing to turn on the taps. If you believe that there are powers that capable then you have no chance anyway.

Joe:

The fall in oil prices will continue as Americans change their wasteful ways. We are the most wasteful energy consumers in the world--and that's GOOD!! Because we waste so much gas, conserving is relatively easy. We can turn in our SUVs for smaller cars when leases come due. We can drive less, and walk, and bike more. We can car pool, use mass transit etc. We can move back to cities. We can double up on errands when we have to drive. Europeans already are doing all these things so they can't cut back. But for many Americans, conserving gas requires few if any major lifestyle changes.

Robert G:

Drill here drill now or the pain will be back and even worse.

Tim3:

Tom3 - did you say the same thing about Y2K?

Tom3:

Anybody who thinks the oil mess is going away is an IDIOT.

And Repukes have the idiot market cornered, so they're probably Repukes.

We are at PEAK OIL. Worldwide.

The days of cheap oil are OVER.

Anybody who says otherwise is a fool.

dan:

Breaking news on gas prices below!!

http://novasportspicks.com/DannyRogersblog/

dan:

Breaking news on gas prices below!!

http://novasportspicks.com/DannyRogersblog/

dan:

Breaking news on gas prices below!!

http://novasportspicks.com/DannyRogersblog/

Dan:

It's just the oil market speculating,but you never know what can happen when election time is right around the corner.

Gary E. Masters:

"COMPRESSED AIR TODAY"

Either show me a reasoned way to store compressed air - as a liquid? Or think of that as another scam.

Right now a tank of gasoline is the best way to store energy for transportation locally for a few people.

Gary E. Masters:

Of course it is a bubble. But how many pension funds will be ruined in the process? How long will it take Congress to act and will that be soon enough? I do not think so. But the trick is to look and see who makes money on the event.

JBE:

Think again dude. Better yet, write on subjects you're familiar with.

When structural changes are made to make oil transactions transparent once again the ENRON style scams of speculators will be reduced and we'll have lower prices.

INDIA is driving cars that run on COMPRESSED AIR TODAY and the US model coming in 2010 at $18,000 and 95mph, 800 mile range....but this fact ISNT COVERED BY THE MSM so you can see there is a long way to go on getting information - real info not opinion - into the marketplace.

The US needs to be driving compressed air cars because we have the technology TODAY. GM just needs to shut up and license it.

Compressed air cars mean lower insurance costs and higher profit for gas stations because they make all of their profit on snacks and dry goods anyway. They would get $2 a fill up for providing an air compressor on the premeisis. They would save the expense of storing 100,000 gallons of highly explosive fuel on their property, the insurance associated with that fire danger, the cost of pumps, maintenance, and gasoline theft.

Since the US uses the vast majority of oil burned in automobiles a moritorium on gas cars would make oil prices plummet.

...and before you go worrying about the oilmen in Texas remember that oil is far to valuable a resource to squander by burning. The REAL value of petrolium is pharmacuticals (they ALL come from petrolium) lubricaton (nothing lubricates but oil) plastics (everything in your office and home, basically) and fertilizer.

Buh's buddies will be just fine when we're all driving compressed air powered cars.

In the meantime stand by for $7 - $10 a gallon. We pay $5 a gallon in California now.

Chris:

Don't know about India, but I know China subsdizes the cost of gasoline so that consumers there pay far less than the actual cost of gasoline. The Chinese Gov't picks up the tab for the difference - last vestiges of their "communist" philosophy I guess in a country in love with capitalism.

Realist:

I see the witch hunt for the speculators still goes on. Oil will only go higher, so get used to it Amerika. The days of easily extracted sweet crude are over. Now with harder to extract crude plus rising world demand and diminishing yields on the old elephant fields, the price can only go up. Carl Jung was right: people cannot stand too much reality. Especially reality related to diminishing energy resources. Get ready to ride your bicycle, America. Your too fat anyway.

Anonymous Coward:

I have a question that I have never seen addressed in this arguement. There is the repeated claim that increased demand from developing nations is driving oil prices. How are these relatively poor (by North American and Western European standards) countries paying for their oil?

It seems that $140/gallon crude would kill the Chinese and Indian desire for cars a lot faster than it would American vacations and commutes. This seems virtually certain if we are looking at a real supply-demand market model.

Dimitry:

==The objective is to squeeze out all the speculators who are just buying oil stocks for gain.==

I don't really know who that is. There is no speculators bying stocks of oil for gain - it is not an easily storable commodity. Physical oil is bought for delivery.

Now, in the regime if tight, inelastic supply and tight, inelastic demand, any fluctuations in either lead to high changes in commodity price.

This is so simple, even most economists should be able to understand it - mathematically, the price function has both a high slope and non-linearity.

mzbond:

When it comes to oil, I think the OPEC, & oil companies see an opportunity to run the price up, take huge profits for the short term, then all of a sudden - there is plenty of oil gushing again or revserves found somewhere or oil found somewhere, and the drilling will start again. Gasoline prices level off at a new higher price of $4.25 that consumers are happy with, and they soon forget the $2.50 they paid last year.

Robin Ficker Broker Robin Realty:

Credit card usage is way up as a percentage of all transactions over a year ago. When Mastercard says credit card usage is down for any kind of transaction that is news.

Robin Ficker Broker Robin Realty:

Credit card usage is way up as a percentage of all transactions over a year ago. When Mastercard says credit card usage is down for any kind of transaction that is news.

Robin Ficker Broker Robin Realty:

Credit card usage is way up as a percentage of all transactions over a year ago. When Mastercard says credit card usage is down for any kind of transaction that is news.

Tom3:

"I think almost every one may have forgotten
the disaster at Parachute Colorado a few years back, where the whole city was making money by extracting oil from oil shale. The speculators
dropped the price of crude oil, and over-night, the city of Parachute emtied out, people abandoned
their homes and mortagages and found employment else where. A city deserted at the pleasure of oil speculators. Moral of the story: The cost of oil extraction must be reduced before it can compete with crude from underground liquid sources."

I haven't forgotten. I was living in PoopChute in 1982 when that happened. I wrote a guest column in the Denver Post about it called "Don't Go West, Young Man".

Squeezing oil from rocks doesn't work. And it isn't oil, it is kerogen, which is only good for light lubricating oils and maybe diesel fuel.

Tom3:

There's no oil bubble.

Maybe the Repukes want you to believe there is.

We are at PEAK OIL. The last two days were just a downtick in a rapidly rising trend.

What is really scary is how the $11 drop directly caused a $250 uptick in the Dow.

Chimpy WAS right for once. We ARE addicted to oil. And it will kill our economy.

J.D.Solano:

As other posters correctly pointed out, investing in oil certificates has been the direct result of a falling dollar. What is an investor to do when dollar-denominated investments consistently lose value? The answer: invest in something else: oil, metals, food, foreign currencies. All this causes the dollar to fall even further.

Now, there is a clear problem here: investors who have recently flooded the commodities markets... don't have experience on these markets. For instance, a pension fund manager who used to have the bulk of the fund in Microsoft or GE stocks, now is buying and selling oil certificates. Because the manager is not well informed about refineries, hurricanes, guerrilla attacks in Nigeria nor Middle East tensions, he/she depends on others to make decisions. So, today's oil prices are driven primarily by investors' ignorance and desperation. Thus the huge fluctuations.

There is nothing suggesting this behavior will stop anytime soon. The fundamentals behind a weak dollar are still there: America's astonishing dependency of foreign credit and a huge fiscal deficit.

Dan Conley:

Chelsea -- your comment is ridiculous. We have one year worth of oil in the strategic petroleum reserve. What are you going to do, give it away? Then you pay for it in the form of higher government debt which means higher taxes down the road ... there's no free lunch.

As for U.S. production, U.S. oil production peaked in the early 70s. It's now far too expensive to extract the remaining U.S. oil ... the only way to increase domestic oil production is to have continuing high prices, that makes it profitable to drill deeper or deploy more exotic technology like shale oil extraction.

So, again, that does not do anything to lower prices. The only way to lower prices in the long term is to stop consuming so much oil. Buy and sell more fuel efficient cars, build more solar/wind/nuclear plants, cut down on suburban sprawl and build higher density communities with mass transit. Those are real solutions ... what you talk about is pure nonsense.

Kenneth B. Smith, P.E.:

Atten: Mr. Mufson. Re: Your column on oil pricing dated 7-17-08.
There is no shortage of crude oil underground
based on the report of American Institute of Economic Research dated 7-7-08.
I think almost every one may have forgotten
the disaster at Parachute Colorado a few years back, where the whole city was making money by extracting oil from oil shale. The speculators
dropped the price of crude oil, and over-night, the city of Parachute emtied out, people abandoned
their homes and mortagages and found employment else where. A city deserted at the pleasure of oil speculators. Moral of the story: The cost of oil extraction must be reduced before it can compete with crude from underground liquid sources.

.

Chesley:

Like I said before. We need to hand out 575 pink slips to the ones that we have elected to run this country. They have all failed. Time to hire new blood. And put a retirement age one elected officials.

Chesley:

All this government needs to do to have $1.50 gal gas again is to put a cap on crude oil and open the reserves. All they need to do is to come out and say that they are ready to put a cap on at anytime they see fit and to first open the reserves to show that they mean business. This is all it will take.

Then let the drilling here at home begin. That way we will not see this happen again. Any regulate it so that the only buyers of crude are the one that take delivery. There is enough things to invest in to better the country than trying to cripple it.

Marvin:

This is Richard Nixon all over again.
We are lead by a greedy Government and the rest of big business follows suit.
Tell me your story of lies and miths and that is OK, just don't try to make me believe it.
We didn't have a shortage durring Nixon's time and wee don't have3 one now.
The State of California makes a ton of money off of higher gas prices, because they charge not only the gas tax but a sales tax on top of that. So don't look to the tax and spend people for help because they are to busy helping them selves.

Oy!:

Again and again...
Raise the carbon tax!
Take some of the speculative force out of it by setting the price at $5 or $6 a gallon. Tax fluctuates as the real price of oil moves, keeping the price steady.
Or do it the current way, but for goodness sakes, raise the tax a penny or towo a year!
Proceeds go to subsidize those who need it, to alternate fules and technologies, to mass transit, road infrastructure repairs, etc.
Billions to the Suadi's and not one penny to the Treasury? to paraphrase someone from the last century is not good business.

Robin Ficker:

People are using credit cards for a higher percentage of purchases this year than last year. When Mastercard says purchases of anything is down, that is news.

Robin Ficker Broker Robin Realty:

When Mastercard reports the purchase of anything is down that is news because a much higher percentage of purchases of everything is made by credit card today than a year ago.

John-Michael:

to SB

"What "influx?" And over what time period did it occur?"

The influx has occurred from 2003 - today. During that time we have seen an over 400% increase in the price of oil. The supply and demand dynamics have not changed in any fundamental way, but during that time we have seen an over 1,000% increase in the amount of money invested in paper oil futures.

rayman:

The boogeyman for higher oil futures is demand.

As worldwide demand falters, a serious flaw begins to emerge in the supply/demand arguments put forth by the oil futures con men.

The most effective way to keep this con moving is to create a potentially relevant story every day about supply disruptions. Somewhere in the oil-making/oil-consuming world, there is a story to be told to bring in more long bets on the barrel. Refinery breakdowns, hurricane threats, Iran, strikes, etc. are all necessary tales to bolster the "scarcity con".

Just remember that all bubbles, including this one, are based on popular acceptance of an easily-understood series of myths.

You then mix insatiable greed with myth.

The resulting concoction: dot.com (infinite profits in the wired world); subprime (infinite expansion of home loans to the masses);$200 per barrel oil. Etcetra, Etcetra.

Growing up in Philly was the best thing that ever happened to me. I really learned how to spot the con.

Fuji:

My only hope is that a lot of speculators get their @sses handed to them by a precipitous drop in oil prices. These are the same people who let greedy real estate developers off the leash, destroying our wilderness and green spaces in the early 2000s. In my town, builders are still building condos and townhomes -- contracts they are forced to fulfill from three or four years ago. Most of them sit empty. I am delighted. Moderate ambition is rewarded. Greed is punished.

As my old sensei used to say: Pigs get fed; hogs get slaughtered.

SB:

With all due respect, you need to read more Paul Krugman. There are too many economic and writing errors in this piece.

"...an influx of financial players into the market has helped drive up prices..." What "influx?" And over what time period did it occur?

"A lot of oil analysts...say...that high futures prices mimic inventory hoarding because on the New York Mercantile Exchange you can take delivery." Umm, ARE they taking delivery? And for a bubble to result wouldn't they then have to hoard what they take delivery of, which you admit is not happening, thereby undermining what your "oil analysts" are claiming?

A piece on rising oil prices that mentions neither the terms "peak oil" nor "dollar devaluation?" What's with that? Did the Post instruct you to omit these terms?

"But if there is fizz in the price of oil...." "Fizz?" Did you have to use such a vague term?

spiderman2:

The stupidity and greed of these speculators can only be reined in by a very srong pill which is a temporary price ceiling I mentioned earlier. If these oil speculators are left on their own without bridle, it's not impossible that they will play up the market once again.

We live in an unstable world now and it's very easy to play up the oil commodity futures market. It's important that Congress will have some form of stop gap measures ON STANDBY (ready to be imposed on a day's notice) so speculators would think twice or trice NOT to fool around.

Speculators are like animals. Thay are expert in psychology. They will pounce on the enemy if they can see weakness. Right now all their eyes are focused on oil.

If such a law is on standby, these oil speculators will leave the oil commodity futures market for good. That would mean good news for the world economy.

If not, it will only go up and hasten the oil commodity doom.

spiderman2:

I've said this before also and I'll say it again also.

Godlessness is a form of insanity. What I mean by godlessness includes false religions too. This oil mess is really cause by the REIGN OF INSANITY AND GREED OVER REASON.

The stock market, commodity futures market (oil), or currency trading can be used as a form of gambling too. The mess we have now is the reign of greed over compassion and reason. People continue to hold on to their oil stock certificates despite knowing the downside of it.

Even these bank failures are caused by greed. What the banks were doing to their borrowers just boomerang to them.

The same could happen in the oil market. This oil market would crash soon.

spiderman2:

I've said this before and I'll say it again.

The price of oil is NOT dictated by supply and demand. They are dictated by people who own OIL STOCK CERTIFICATES. These people will be forced to dump their oil stock certificates at a lower price to avoid a mass sell-out (where stock prices shoots down ) in case a legislated price ceiling is made.

The price ceiling is not necessarily 140 dollars per barrel. It will be set at the time the legislation will be approve. If oil is selling at 150 dollars/barrel for that day, then that would be the ceiling price. NO OIL STOCK CERTIFICATE CAN THEN BE SOLD HIGHER THAN THAT AMOUNT THE NEXT DAY.

The ceiling price for the next other day will then be the selling price for that day. Example : Monday ceiling price=150 dollars/barrel. During the day, it shoots down to 147. Tuesday ceiling price=147. The same day, it shoots down to 140. Wednesday ceiling price=140. Theoretically, the ceiling price goes down depending on the market behavior. It will only go down but never up.

The objective is to squeeze out all the speculators who are just buying oil stocks for gain.

The moment the U.S Congress starts debating about it and be really serious about it, the price of oil would shoot down. The rest of the world would follow suit. Let the speculators know that Congress is not bluffing or else it would just be business as usual.

NOT BUYING GASOLINE WON'T DO YOU ANY GOOD. As I've said, supply and demand is NOT the culprit here.

John:

I wish I could understand the logic behind the Democrats energy policy.

Democrats are against offshore drilling, drilling in ANWR, etc. I can understand that if the logic is scarcer supplies drive up prices, reduce consumption, and environmental concerns trump all.
What about the environmental aspect? From a global perspective why is ANWR more important than some other area in Nigeria that would have the risk of environmental impact? Is our next step a global monitorium on drilling?


Democrats want to release oil from the strategic energy reserve. High prices are bad we want to increase supply?? I have not read how long this effect is expected to last. What happens when prices are low - we buy big cars and move farther away from work?

Democrats are for alternative energy. Everyone is. How much of an impact will alternative energy have between now and the next 10 years?

Nuclear is being talked about, but nuclear will be used for electricity generation, and electric power plants use natural gas for the most part.

Only one thing makes sense to me. We need more oil from safer parts of the world - and our back yard is best.

Energy affects the economy. The economy affects real people. How many people are on the cusp and fall over the edge and die during a recession or depression. How many people in the third world are at the threshold of life and death and go either way depending on the state of the world economy? Why is this not important? Where are the protests?

Serr Grandi:

I think the following facts will drive the price of oil in the coming months.

Drivers for higher oil prices:
1. The increasing demand for oil in the emerging markets, especially China, Brazil and India.
2. The increasing demand for oil in oil producing countries themselves, like the countries around the Persian Gulf (Saudi Arabia, Iran, UAE etc.) but also Russia.
3. The possibility of a US or Israeli attack on Iran.
4. The uncertainty in the global financial markets, which will indeed direct/force the investors towards commodoties (oil, gold etc.)
5. The falling value of dollar.
6. The lack of investment in non-oil infrastructure in the developed world (nuclear powerplants, alternative energy etc.) over a long period of time.
7. The increasing difficulty of pumping out more oil from the major existing oil fields (almost all major oil fields in the world have already passed their peak).

Drivers for lower oil prices:
1. Dealing with the falling dollar issue.
2. Creating transparency on the current financial crisis and establishing a global regulatory/monitoring body for securing the future (regaining market confidence).
3. Applying a diplomatic approach for solving the Iranian nuclear crisis. Allowing Western companies to heavily invest in Iran in order to increase the oil production (Western technology and know-how needed).
4. Truly start a global entrepreneural cooperation around all aspects of peaceful nuclear technology in order to face the increasing demand in energy in almost all major countries.
5. Informing the masses about the necessity of life-style changes and enable them by a supporting infrastructure(this takes long time).

As the current production level of 85 million barrels of oil per day does not satisfy the current consumption of 87 million barrels per day and as the demand is constantly increasing and the supply is shrinking, I strongly believe it is time for the political decision makers to face the reality mentioned above and make some tough and immediate decisions in order to avoid a major disruption in the global economic system.

Scott:

Hopefully this is the end, but let's learn a lesson from the pain.

Eric:

The bubble is about to burst. The recent prices of oil are simply not sustainable. If we, the richest nation on earth, can't afford it, nobody else will be able to either. Other countries are already reducing the subsidies they have been providing. They simply are going bankrupt trying to protect its citizens from these dizzying oil numbers. Supply is way down. Just look around. I know I have friends that are using less gas than they used to. I bet everyone else has friends/family doing the same. Output is on the increase. Analyst say new supply will be coming online in just a few months. I have not seen a single supply/demand argument for high oil prices that explains the type of increases we have seen. They simply do not exist. Daytraders have poured billions into speculating oil. Thats it. Not a single cargo ship has not been filled due to a lack of oil. NOT ONE! I am glad to see the bubble going bye bye. This type of bubble (energy) is the cruelest to the lower income folks. I'm really happy for them.

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