[Tietäjä]

Originally Posted by Zar

Your understanding of why oil prices are so high is too simplistic.

It's simplistic because I wasn't having an attempt to write a thesis on the oil price development here.

Unfortunately the price of oil isn't regulated by simple supply and demand economics. It is a traded product and therefore subject to market forces and more importantly speculation.

And most importantly politics. If you look at what happened during the last oil crisis, there's a common factor. Speculation isn't borne out of nowhere - investors don't speculate on random products simply for shits and giggles, they do it for gains. And they do it on goods that have the potential to produce such gains. Generally, goods that are under an efficient market aren't subject to as much speculation simply due to the fact that the probability of the potential gains is smaller.

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.

It's interconnected. You cannot ceparate speculation from it's source. If the oil production/supply wasn't controlled by a minimal amount of people with an incentive to gain profits from it themselves, it wouldn't be such a good product to speculate on.

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. 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.

Have you ever stopped to wonder why oil is in the position it is in today's investment market? It's definately not because the industry is well and on a solid structure. Why would US announcing an attack on Iran (purely hypothetical) cause a rise in the oil prices? Also, what will happen to the oil prices once US is able to control the output of the oil "liberated" in Iraq? Is this all simply because "people like to speculate with oil"? I'm going to quote myself now.

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

The fact that (Iran/)Iraq control vast supplies of oil has been rumored as one of the factual reasons of the US attacks to Iraq. Some would go to the extent of saying that all the anti-terrorism talk, the export of democracy and the liberation of the Iraqi people is a footnote in compared to seizing the oil. You'll probably outright deny this, because this would imply that a part of the reason for oil prices must indeed originate from the owners of the sources - the cakefaces who happen to own the land the stuff is in.

Originally Posted by Zar

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.

As a self-fulfilling prophecy.

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.

There's a lot of opinions on this. I think the general consensus is that we're never going to see "cheap" oil again, but that's a matter of perspective. If you compare a 145$ a barrel (which they just broke today) to a 250$ a barrel, the 145 is definately cheap.

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.

On this note, if you read what I said, you're supporting it at the moment. While I didn't form it as it should be on a scientific mag (which this isn't), I was essentially trying to say that the bottom reason oil market is so ****ed up is because the ownership of it (I'm repeating myself, I'm aware) is centralized and oligopolistic. OPEC isn't a random club of gentlement. They're in it to make money.

If what you're saying is that the oil prices are on a rise because of speculation, I'm partially agreeing. What I'm saying, though, is that the speculation is a symptom of an ill market. Rest assured, you can say that it's speculation that's causing the price of the barrel to rise, I can't really disagree with you, but I can claim that the speculation originates from the market structure present. It wasn't simply a joke someone came up with.

There hasn't been much anything you could call a speculative attack on the Euro since it was established as an official currency. On the contrary, prior to and during the great regression of the early 90s, there was significant speculative attacks on the Finnish Markka. Why isn't anyone hitting out at Euro? Because it's far stronger than a feeble local currency ever was, or ever could have dreamt to be.

Did I cover my case on why the structural problems of the oil market are a core reason to the price of the barrel going upwards? Mind you, this isn't exactly nothing new, I'll actually continue to elaborate my claims with a real example. The oil crisis of the 1970s. Here's a graph for you. The cakefaces mentioned several times decided to pull a plug on the supply. The resulting incidents lead to the collapse of the Bretton Woods and a depreciation of the dollar, while the oil prices were on the rise (yes, there seems to be a negative correlation between these two. now, a sharp-sighted person would not close out the possibility that this correlation is partly/purely statistical, and doesn't necessarily apply without other factors involved).

Feel free to do more research on the 70s oil crisis. I'll throw a question up again. Why do people speculate with oil?