Thursday, July 09, 2009

So the Price of Oil Has Gone Down...

Should we Blame The Speculators! - (Well I wanted it to be a question....)

People want to blame speculators for rising prices. Just doesn't work that way. Here's a history lesson for you.
In the past, dictators like Stalin killed peasants for hoarding food.
Was that really why there was famine in the old Soviet Union? Or did government controls really quash the economy?

Today the issue isn't food prices - well not in America it isn't - it is the price of oil. So are speculators to blame? What about when the price was going to 100 dollars a barrel? Was that caused by speculation?
In testimony to the U.S. Senate in April 2008, Chief Economist Jeffrey Harris said the run-up of oil prices past $100 a barrel was due to increased demand, not speculators.

"There is little evidence speculative positions are systematically driving up crude oil prices," Harris concluded.

For that study, the [Commodity Futures Trading Commission (CFTC)] sifted through millions of trading records available only to the agency. It found that when news hits the energy markets, commercial traders at airlines, oil companies and utilities are the first to react, with financial traders following. The researchers found no evidence of things going the other way around, with speculators driving up prices and nervous commercial traders piling in to protect themselves.
That isn't speculation - that is called hedging. Airlines and transport companies generally, and utilities dependent on oil are really sensitive to the price of oil and fuel. So they participate in the futures market in an effort to keep costs down. Do you think that is a bad idea?

Oh and prices will go up again. UBS ups oil price view for 2009 and 2010 - MarketWatch
UBS increased its oil price view for 2009 and 2010 to $70 a barrel from $51 this year and $58 next, citing second quarter prices coming in $10 a barrel higher than its forecast, declining inventories in the second half of 2009 and into 2010, a weakening dollar in 2010 and 2011, and the market's willingness for greater risk appetite.
Oh, and the falling dollar... Yuan deposes Dollar on China border in sign of future China is actually trying to do something to limit its exposure to US government insanity. (More on this later.)

But when prices go up again, late this year, and next, I know people will blame the speculators.

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