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Speculation Drives Oil Down Too

How do you like that 70 dollar barrel of oil? Yes, oil is trading at less than half the price it was just a few months ago.

Why? Well, the economy is predicted to go down, and so oil traders speculate that there will be decreased demand for fossil fuels…

Oh, hold on a second. They speculate that there will be a decreased demand for fossil fuels? That’s what’s driving down the price? So that would suggest that the doubling of the price of oil over the last year was due to speculation as well, wouldn’t it?

If we can cut the price of oil in half just with a few weeks of positive speculation, we never really needed the “drill, baby, drill” chants for no-limits offshore drilling, did we?

I think that there’s a good argument to be made for the idea that, although the current financial crisis is founded broadly upon problems in credit markets, that the economic stress that provoked the breakdown in credit markets was the rapid inflation in the price of gasoline and other oil-based energy products. That provoked inflation in other goods, which led to a drop-off in consumption, which led to layoffs and business closures, which led to a heckuva a lot of precarious credit being tipped over the edge into downright bad credit.

A lot of people are calling for increased regulation of credit markets. That’s fine, but congressional investigations followed by increased regulation of energy markets seem to be needed to. The hypercapitalist faith in the genius of the market place has not been vindicated… unless you categorize what’s happened to the economy as the result of oil speculation as evil genius.

3 comments to Speculation Drives Oil Down Too

  • Update – oil down to 67 dollars per barrel. Hmmm… It’s as if the oil markets are anticipating George W. Bush no longer being President, and returning prices to the pre-Bush level. Hmm…. How would that work?

  • J.

    You said, “So that would suggest that the doubling of the price of oil over the last year was due to speculation as well, wouldn’t it?”

    Actually just reading the above linked Senate report from June 2006 would have told you that two years earlier. So would checking the actual public supply/demand numbers or that Tar Sands are excluded in official numbers or an understanding of what the London Loophole or ICE was.

    Please be surprised when it hits it’s real market value of about $50-$55 “IF” the next admin brings back proper regulation that was stripped away over the years.

  • J.

    Apparently my link didn’t make it..misunderstood th website box…here it is:
    http://www.senate.gov/~levin/newsroom/release.cfm?id=257862

    and I quote, “some analysts have estimated that speculation has added as much as $20-$25 to the price of each barrel of oil, thereby pushing up oil from about $50 to around $70 per barrel.”

    Now if they knew this in June2006…did they really need to pretend they still didn’t know in June2008?

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