Capitol Hill Blue Forums Political Issues Finance, the economy & Economics Reducing the cost of Oil

Pondering.

Shortages.
You are correct that there are no apparent shortages. However fear of shortage can also be a potent price influence. Taking only the most recent example, we have the Israeli air-force conducting practice operations designed to intimidate Iran. If they do that, who knows what might happen. The prudent investment decision is to stock up on oil futures just in case.

And while it is true that there is no immediate shortage of oil, there is also no apparent surplus. And from a risk mitigation perspective, there is more risk of some potential supply disruption than there is risk of an over abundance of oil causing price collapse.

Speculation.
Our attitude toward this topic seems to shift based upon context. When home price speculation drive our equity higher... remarkably few people complain. When stock speculation drives our investment portfolio higher, there is mutual congratulation. Current oil speculation seems less popular for some reason... although I suspect this speculation is not entirely unwelcome in oil exporting countries.

Causes of oil price increases?
One suspects that the cause in not simply speculation. Given the falling value of the dollar, a prudent oil seller might well expect a higher dollar price for his product. Yet do we blame ourselves for our scandalous disregard for the value of our currency?

For innumerable years, human beings have hoarded scarce commodities like gold as a storehouse of value. It seems now that Oil has been added to the list of commodities that may be acquired as a storehouse of value. I can certainly understand if china for example might prefer to hold oil rights (futures) in preference to dollar denominated T-Bills


New Saudi production.
Well yes it may shift market sentiment toward lower prices. But at the moment, everything I read in the press says that it will be a modest increase in production with little impact on prices.
"The Saudi output increase is "going to help a little bit, maybe reduce prices just a little," New Mexico Gov. Bill Richardson, a Democrat and former President Bill Clinton's energy secretary, said on CNN's "Late Edition" program. "It won't be significant."

It remained unclear if Sunday's announcements would have any greater effect.

At least one analyst said he thought they would only spur prices higher."
http://news.yahoo.com/s/ap/20080622/ap_on_bi_ge/Saudi_oil_summit;_ylt=AiJxFKq4zk.9Od76eme0WYes0NUE.

And in the same article I read....

"U.S. Energy Secretary Samuel Bodman, however, said earlier that U.S. officials had found no evidence speculators are driving up prices."


FOr those who are convinced that current Oil prices are an unsustainable bubble, I suggest that you grow rich by shorting the futures contracts.

By the way, I made the same suggestion one year ago and two years ago when posters were convinced that oil prices were surely too high and would fall shortly.