Posted on 08/05/2008 8:40:13 AM PDT by rightinthemiddle
In terms of the actual cost of extraction and production, oil is one of the cheapest commodities available to mankind. I don’t know where this notion of “ridiculous prices” comes from.
Look again.
The ECB has been keeping their rates too high for years now. However, many businesses and politicians would have supported coordinated intervention in the currency market to counter them. The one thing lacking was leadership from the American president to get it done. In fact W’s message for years now was that he would let the dollar fall without intervention.
“Wait. I take that back. There has been one huge new factor. A staggering rise in purchases by speculators of contracts for future delivery of oil. This has been a new and gigantic effect in the market. This same effect gave us a bubble in high tech. It gave us a bubble in gold and silver about thirty years ago.”
I agree with Ben. There is an old explanation for a rapid rise a particular stock, or stock in an industry, or a rise in the entire stock market: Too many dollars chasing too few shares. And the stock or industry segment, or the entire market becomes: “overvalued”.
That has happened when some stock or segment becomes the next big thing, or when large amounts of foreign money, or money from lower yielding investments begins to flow into the stock market in large amounts.
No reason we can’t have too many dollars chasing too few crude oil futures contracts. So, the futures market can raise the price of crude independent of the actual supply and demand for crude.
This could happen and be entirely legal, or, as discussed in a thread a few weeks back, schemes to allow some trading entities to purchase more contracts that intended can allow big money buyers a bigger stake in the futures market than regulators intended.
It only went as high as it did due to a huge short position by SemGroup. It was the 2nd largest commodity loss in history ($3.2B), but you haven’t seen any news of it in the MSM. See http://www.investmentrarities.com/weeklycommentary.html
If you think $120 a barrel is ridiculously high, then place the blame squarely where it belongs: On the weakness of the U.S. dollar against almost every other currency in the world.
Ben is not much of an economist. I have read some of his recent economic writings, including this one, and they are not very well thought out and many of them are just plain wrong and leftist (calling for higher taxes and wealth redistribution in some of them).
That is certainly a factor as well.
It will also remain high because China and India have been increasing their demand like crazy (and China subsidizes it for its people, which doesn’t help matters). It cracks me up to hear people talk about it dropping back to $2 a gallon.
OMG it’s an Hour long!!
I'm afraid that I have no earthly idea of the point you are trying to make with the use of the term "competitor".
If you are making a reference to large multinationals like Exxon, It might be of interest to you that big oil companies have zero influence on the prices set by the crude oil markets. They are at the mercy of the trading pits, just as the end use customer is.
In fact, Exxon is about the only major producer left who even has the slightest interests in gasoline distribution as in stations, and they are currently selling all those assets in order to avoid any connection with gas prices. The rest have already done so, if you have not yet noticed.
The price of crude is set in the trading pits, located in the commodity exchanges in Chicago and NY. The trading is in the future price of oil based on supplies, weather, political unrest and most importantly the demand for the product. The Oil that you always hear about being priced per barrel is sweet crude. The price of the other grades is lower, but rarely is it news. Refiners pay according to contractual prices that are set based on the spot market prices, but they rarely pay the high price as advertised.
Currently, refiners are only now beginning to get their profit margins back in line with their costs and have been actually losing money during the period of time when gas was over four bucks per gallon.Their crack spread, or per barrel profits actually went negative because they took the loss and could not pass on the actual costs. people just would not pay it.
The high ridiculous profits are made by the owners and producers, who include some multinationals like Exxon, but are mostly governments who control the land and resources. These governments are the ones raking it in, but they do not have any control over the price beyond the tariffs and taxes they levy on the producer who pulls the oil out. This is all passed on.
A government entity like Iran, Mexico, Venezuela, Canada, Russia and others or the U.S. can affect the price by announcing a restriction to the supply, which will affect the entire supply chain. The only government entity restricting supplies to this degree currently is none other than the United States.
So....it then follows that if you want to point a finger at the guilty, point it squarely at Washington DC and by extension, point it at yourself.
I have been looking for months for a good article/analysis
to convince me that oil prices are going down.
I like Ben Stein alot!
But this article is not it!
For the next ten days, there is no major oil mover expected, so I expect some testing of the lower prices, but there is far to much head wind to allow a return to where this all began at the 70 dollar price point. Other than Brazil, who's supplies will not come on line for a decade, the US is the only country with known reserves that could change the supply dynamics, and for now, I only see a faint hope of doing so.
The question is, as Ben Stein pointed out, there is any meaningful difference in supply and demand between when oil was $70 and now.
B I N G O !
I think this is the best one. A liberal co-worker of mine said the reason oil prices are coming down is because Cheney had a talk with his oil buddies that they made enough on the upside and now it is time to make a killing on the down side.
I wish more folks would get hip and complain about the correct things.
Also, Ben is in on the scam, he is and always was a subtle mouthpiece for the King and his new clothes.
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