If you’re a proper geek, they also caused the trading card bubble and the comic book bubble as well. ;)
…and the PS3 bubble.
… the Rock Band bubble of late 2007.
Surely the equilibrium price is just whatever the sellers can charge without the buyers saying “no thanks”? Unless you’ve got a monopoloy seller, or a cartel acting like a monopoly… but hard as they’ve tried, OPEC has never managed to get their act together before… why would that change now?
There is no rational reason for oil to be at it’s current price. What is the event that caused the price of oil to have such a dramatic historic increase yesterday, and contribute to a huge drop in the stock market? By all accounts, some dude at Merril Lynch making a prediction.
Is the Middle East in the middle of an impending war that will shut down oil, in more danger of that than 2001? Than 2003? Than any time in the past? (No.) Are demands much higher than the capacity today, more so by triple than any time in the past? No. Is there ANY event or situation that makes oil worth almost $100 per gallon more than it was in the last year? Absolutely not. This is a very artificial price, and it is having a huge impact on our economy, and not just in gasoline but every aspect of our economy.
Personally I think it is being manipulated for the extreme wealth of a small subsection of powerful people.
I think manipulation is quite possible. However, demand doesn’t have to triple for the price to triple. Even a small increment in demand that isn’t met by a supply increase can cause a big increase in price if people aren’t willing to cut back.
But this massive and incredibly rapid increase in price is not due to a massive and incredibly rapid increase in demand. The reasons given for the enormous one day increase in price yesterday that caused the market to crash almost 400 points? An analyst said he thought prices would go up to over $150 by July 4th. Suddenly people on the trading floors are screaming and the price of oil is skyrocketing. Oh, and Israel and Iran are trading insults. And we’re supposed to buy that this is a legitimate reason for that huge increases and the resulting economic impact.
This is why oil is up and the market is down.
Israel has said a strike on Iran will be “unavoidable” if the Islamic regime continues to press ahead with alleged plans for building an atom-bomb.
The warning, from Israeli transport minister Shaul Mofaz, is the bluntest threat yet against Tehran from any member of prime minister Ehud Olmert’s administration.
In an interview with the mass-circulation Yedioth Ahronoth newspaper on Friday, Mr Mofaz said that Iranian president Mahmoud Ahmadinejad - who has called for Israel to be wiped off the map - “would disappear before Israel does”.
“If Iran continues with its programme for developing nuclear weapons, we will attack it. The sanctions are ineffective,” said Mr Mofaz, referring to pressure by the United Nations security council to end Iran’s disputed programme of uranium enrichment. “Attacking Iran, in order to stop its nuclear plans, will be unavoidable.”
Rimbo,
your CNN article does not say “The current equilibrium price is $50/barrel.” It says that the current cost of production is $50 a barrel. There is a big difference (BTW that is a pretty high number, much higher than what is commonly asserted, or at least that was asserted just 12 months ago. I guess the higher energy costs are having an impact everywhere).
To those people who are saying that the refiners are making off like bandits check out the charts of VLO, TSO and their cohorts. They have not been doing well for the last year. It ain’t the refiners who are causing the current spikes. Yes, they did well from late 2002 to 2007 but now they are feeling a little pain.
To those who say it is speculation: The speculators do not, in the vast majority of cases, take shipments of the oil. There is limited storage space (more is being built). While speculators can wildly change the price of futures contracts they have much less impact on the spot price.
It seems pretty simple: global production of oil in the 21st century has not risen much. Global demand has increased due to, predominantly, China and India but due to more affluence in many parts of the globe (and as a hedge against the falling dollar). This has caused the price of an inelastic commodity to rise greatly in a few years. Rimbo’s article rightly notes that this will cause more application of capital, which will increase supplies in a few years resulting in a classic boom-bust. In the mean time, with little slack production and a highly inelastic commodity futures prices will vary wildly as ‘new information’ (eg: Shaul Mofaz’s comment) is discounted.
I think that’s a very safe bet Dirt. This shit is getting way crazy. $.30 gain in a month? WTF?
Heck, gas went up $.40 in just the past week here in southern Orange County. It was 3.99 and now it’s 4.39 for regular unleaded. Diesel is up over $5.00 right now.
Most places are $4.45 a gallon here now.
Dude, I’m sorry, but gas here is somewhere close to $8/gal. Even with the hike in prices, people in America have it way better than in Europe. My solution (and, ok, this is not taking into account the way that fuel prices affect the price of all goods), is to not own a car and take public transportation.
fixed
This is would be a good time for the car companies to free up those all secret patents for vehicles that run on water, the engine designs that get 100 mpg, etc.
Definitely don’t see the oil industry being nationalized. Would the oil industry hire Blackwater to defend their interests?
Might not be a bad idea to standardize the gas mixtures to allow the refiners to focus on just a couple different mix designs instead of the potpourri that’s out there now.
At least one analyst seems to agree with the oil bubble hypothesis:
“Oil prices are surging not because of a supply shortage, but because of massive liquidity,” Ito said, referring to the influx of financial funds into markets, helped by low interest rates.
Yeah. Basically, people like Midnight Son are the problem. (But I STILL really do hope he does well. Of course, he has to sell for that to happen…)
Hey, someone, I thought a principle of economics is that supply always equals demand. Or something. Help? Crap… I can’t put my finger on what I once learnt and thought was amusing/interesting/revealing.
But see, here’s the thing: I invested in Energy mutual funds, not individual companies and it was several years ago. It’s been averaging over 30% a year for almost 6 years now. Other than my sizable initial investment, I haven’t added to it. Actually, I’ve been selling yearly to rebalance my portfolio. So, I’m not speculating!
This is kind of a dangerous game they are playing. This is very unlike the dot com bubble were speculators could run up the cost of a worthless stock for an extended period of time. Right now people are driving up the cost of oil that is still in the ground two months in advance. People feel that no mater what they pay for it now, someone will buy it for more two months down the line. At some point, this will no longer be true. Demand will go down significantly at some point. People will find alternatives. Either use less product, use an alternative, or get out of business all together. When that happens, investers who bought oil two months in advance at a high price will have no one to sell it too. It isn’t like they can just take the hit and hold on to their investment like stocks or gold.They will have something that can’t sell, nor use or store and they have two months worth of it. Somebody is going to take a huge painful loss at the end of this.