Oil and Speculators
My new column is up at Forbes, and discusses the absurdity of blaming sustained higher oil and gas prices on speculators.
Is there a crime in the current oil prices? Yes, but it’s not one of speculation. Prices are a form of communication. Higher prices tell consumers to use less oil, and producers to go find more. The real crime today is that while the signal is flashing today to oil companies to go find more crude, the Obama administration has bent over backwards to make such efforts all but impossible. In fact, the Obama Administration desperately tried and failed to increase oil and gas prices via cap and trade last year. President Obama is not really against higher oil prices, he just wants them driven higher by the state, not by the markets.
Rick Caird:
Your last statement is wrong. Obama wants higher oil prices. He just doesn't want to appear responsible for them.
April 22, 2011, 1:38 pmNoah:
It isn't clear that President vacation has any grasp of the concept of supply and demand.
April 22, 2011, 1:47 pmHunt Johnsen:
How much of the apparent price increase is due to devaluation of the dollar?
April 22, 2011, 1:52 pmIncidentally, you mention the Hunts (no relation!) and silver - the current price of silver is over $45/oz.!
cary:
It doesn't appear that President Present has any grasp.
April 22, 2011, 1:53 pmSean2829:
Perhaps Eric Holder of the Justice Dept. should be investigating the Interior Dept for holding back the supply of fossile energy resources and driving prices higher. Also consider the irony of the results. The "evil" oil companies make a lot more money when supplies are tight.
April 22, 2011, 2:24 pmArthur Felter:
I'd like to add a comment to this piece.
I work for a commodities broker and am series 3 licensed. My brokerage deals in foreign currency, and I watch the markets closely every day. It is true: I see on a frequent basis speculators taking control of the market. It can happen and it does happen.
However, it never lasts. Sure, speculators may inflate prices, but it would be nearly impossible for those prices to be sustained for a day - maybe two - tops (depending on the market and its volume). The underlying fundamentals will always prevail in the end and drive prices to their true price.
April 22, 2011, 3:29 pmJ:
Actually it's a clever ruse to force everyone else to deplete their reserves. Then, when the price reaches some arbitrary level, say $300 a barrel, we'll start drilling and pay off the national debt in 4 years. Unfortunately, Resident Obama will be long gone and widely execrated when remembered at all. President Palin will finish 2 terms with a booming economy.
April 22, 2011, 8:50 pmstan:
Noah and cary,
It's not his fault. It hasn't been programmed into his teleprompter.
April 23, 2011, 5:29 amTed Rado:
How much incompetence is required to be an official in the US government? Apparently, an infinite amount.
April 23, 2011, 12:12 pmDan:
I agree with you that we need to drill more in the U.S. There are billions of barrels offshore on both coasts and in Alaska that are now off limits to drilling. This isn't just Obama's fault. It's a NIMBY philosophy that's affected both parties (remember Gov. Bush is the one who prevented drilling off the coast of Florida).
The sad thing is, even if we did begin drilling full steam ahead, it would have little impact on oil prices in general, because it would be 5-10 years before oil could begin flowing from the new areas. So to cast this as a quick fix is just wrong.
April 24, 2011, 10:12 amArthur Felter:
@Dan, in response to "The sad thing is, even if we did begin drilling full steam ahead, it would have little impact on oil prices in general, because it would be 5-10 years before oil could begin flowing from the new areas."
As an experienced commodities broker, I can tell you that this isn't true. There is a saying in the investment world, "buy on the rumor, sell on the news." In other words, rumors of what is going to happen gets baked into the cake, and by the time the event actually happens the market price has long since reflected the event.
In other words, if it is announced that a particular drilling site will be opened in 3 years time and yield 500,000 barrels daily, market price will immediately reflect this soon-to-be addition. If, however, when the drilling site finally comes online and provides more (or less) than initially expected, market price will decrease (increase) to reflect the change in output.
But market price will not wait for the oil to come online to be reflected in prices.
April 24, 2011, 2:21 pmDan:
Arthur,
That makes sense to me, too. I used to write about the commodities markets, so I'm familiar with the "buy the rumor, sell the fact" concept. I certainly hope to see the way cleared soon for our resources to be used wisely.
I recently saw an article quoting people concerned about developing oil in Alaska, citing safety concerns. From their tone, you'd think oil had never been drilled in Alaska before. We've had 40 years of experience in Alaska, and as far as I know there have been few if any major impacts on the environment.
April 25, 2011, 7:24 am