Hedging up barrel prices strictly based on the fear factor is BS. There already WAS a $20 fear factor tag on the barrel. Call it the terrorist surcharge, or what ever.
I don't care what you say, this fear pricing is out of control. It doesn't NOT reflect supply and demand at all. There is plenty of supply, and plenty of reserve. Plus there is plenty of additional capacity.
If you think the oil companies are going to pump out EXCESS, you're nuts. They will keep production as tight as they can to keep prices as high as they can to make as much profit as they can, which they are setting records making.
AND, I'm not afraid to make a bit of money off something I can't change. Besides, higher prices might stimulate some alternative actions, like drilling in ANWAR and off the east coast, as well as building some nuclear generating stations, etc etc.
In fact, maybe it takes a good scare to get Europe off their Butts to take action against Iran. It is after all THEIR oil supplies that will be effected MUCH worse than ours. We might hurt, but they will hurt more.
First, noone, and certainly not I, thinks oil companies are going to lift (not 'pump') excess crude. Isn't going to happen.
What needs to happen to lower prices is that the market must be persuaded of two things: 1) that the capacity to lift more crude on demand does in fact exist (right now, excess capacity is at a 60+ year low), and 2) that the possibility of major and possibly long-lasting supply disruption is minimal.
Anyone who believes that static, i.e. present-day, supply and demand are THE determinant factors in price is economically and historically neither informed nor sane. Regulatory costs represent, variably, between 20 and 100-odd per cent of product cost in energy. Insurance costs (and that's what hedging is) have added and will continue to add between .002 and 15-20 per cent, depending entirely on perceived future availability.
Throw sharply increasing demand into the mix, and then add in perception costs (i.e. what the participants believe supply and demand will be in the future), and you're right about where we are now. Don't forget about interest costs, either. 4% of $70 is another potential $2.80 on the price of a barrel for 1-year delivery.
Fine w/me, make a profit. That's what I do (the Katrina fiasco being a spectacular exception). Drill everything in sight and by all means build all the nuke facilities possible -- I've argued this for years, and right here on this board.
All that said, though, you really just don't get how markets work in times of scarcity, whether immediate or perceived in future. You aren't going to change how they work in these circumstances, either.
If you think the oil companies are going to pump out EXCESS, you're nuts. They will keep production as tight as they can to keep prices as high as they can to make as much profit as they can, which they are setting records making.
----
Which then fulfills the requirements for monopolistic actions. Which is against US law.
--From Adam Smith--
"The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price."
The Wealth of Nations, Book I, Chapter VII
"The price of monopoly is upon every occasion the highest which can be got."
The Wealth of Nations, Book I, Chapter VII