Thread: Food Crisis
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Unread 3 Jul 2008, 12:04   #17
Zar
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Re: Food Crisis

Quote:
Originally Posted by Tietäjä
The fuel market is known for it's retarded inefficiency, oligopolistic hegemony, and a couple of people wearing rags on their heads making a lot of money out of it. If they actually wanted the fuel prices to remain stable, they would have them remain stable and simply reduce the limits on the output. It's a giant conspiracy out there. The real need of alternative fuel sources grows not only from the fact that the currently widespread ones are nominally limited and will probably eventually run out, but the fact that there's a bunch of cakefaces sitting on them.
Your understanding of why oil prices are so high is too simplistic.

Unfortunately the price of oil isn't simply regulated by basic supply and demand economics. It is a traded product and therefore subject to market forces and more importantly speculation. The reasons why the oil price is so high at the moment has more to do with speculation by traders rather than any intrinsic change in current demand from the consumers or current supply from the producers.

Oil (along with other commodities) has become a basic hedge against equities, more so as traders continue to worry about the failing credit markets. Oil is also somewhat inversely correlated with the dollar, and therefore as the dollar has been weakening, so to has oil prices increased. Oil is also proving to be somewhat of a safe haven against inflation. Of more importance, is the speculation by traders that oil prices will increase in the future. The futures market is often a good indicator of where traders think oil prices will be in the future. Where you have traders taking out call options (the right to buy at some time in the future at the strike price) upwards of $250 it tells the market that people are betting that in x number of months/years they believe that the price of oil will be higher than it is today. The market sometimes (as it has done) responds to this with even more speculative buying on the assumption that the purchasers of these options are indeed correct.

The next few months are going to be very interesting. Oil prices might continue to increase or there is a growing chance that the bubble will burst on commodity and oil prices.

On another note, if you do your research, I think you'll find that some of the larger oil producers and drillers have reasonably large stakes in alternative energy companies.

Last edited by Zar; 3 Jul 2008 at 13:13.
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