[Tietäjä]

Originally Posted by Zar

If you've ever worked as a trader, indeed any form of front office Investment Banking, you'll slowly come to realise that people can and do speculate on products such as oil, without being able to produce any factual evidence on future supply and demand constraints.

But you're still stuck with reasonably close history of those. This is what implicitly affects the market. I've never worked as a trader, or in an investment bank, but I really fail to comperhend that they'd pick a random good with no particular reason (a bluntly faceless product, say, pencils) and start making tons of options for them for no particular reason. And that tons would jump into a bandwagon. If you could enlighten me with an example of such a product I'd be very interested to read a case study. Oil isn't good for it. Even if you can't produce any factual evidence on the future of it, even a layman is well aware of say the mentioned crisis at 70s. You can argue till the very infinity that there's currently no reliable signs of oil production/export constraints, but what you cannot do, is get rid of the last 30-40 years of history. Oil is heavily profiled by that.

You're not getting my point. I'm asking you to rationalise why oil prices have suddenly shot up when the supply and demand for oil hasn't changed by a proportional amount.

I'll agree with you that it can partially be speculation. But this speculation did not appear out of nowhere. I'm going to argue that what the United States have done in Iraq for years now has a part to play (to sum up, US foreign policy on the Bush jr. era) in this. Now, the speculation if a symptom of outside influences. Something has triggered it. It didn't just happen out of silly (if it did happen out of silly, could you please point me to a major speculative incident in the history that happened out of silly other than mentioned oil crisis, and provide with a case study). I am going to stick to my side and argue that price increases of this side, even if results of speculation, do not simply happen out of nowhere. Now, I'll make a crude allegory. If you've got a STD, and your balls itch because of that, you can scratch your balls all you want but it's not going to end the itch. Because the itch is actually a symptom of the disease, not the disease itself. The reason why such speculation occurs with oil is may be because

a) The 70s oil crisis is widely known as an event that "can happen"
b) Based on past experiences it's easy to say there's not going to be an intervention to cut prices down - we're all aware that a majority of the oil is controlled by OPEC which is the classical example of an oligopoly.
c) There are major nations currently exerting military force in where a lot of oil is - for a political reason or another.

I wouldn't be too trusting of the demand for the euro just yet. It's still a young currency and concerns about inflation will continue for a while.

This is sidetracks. The point I tried to make was about the fact that people are less keen on speculating with something that has more realistic backup. A small national currency doesn't.

The reason for high oil prices now have very little in common with the reasons for oil prices during the 70's. Oil suppliers haven't pulled the plug on supply.

Yes. But the 70s case cannot be forgotten when you look for incentives why someone would speculate on oil.

What you didn't answer was

Have you ever stopped to wonder why oil is in the position it is in today's investment market?

What it seems you are claiming is that people are speculating on oil at the moment simply for shits and giggles. And that's what's causing the price increases.

What I'm saying is, that the reason the oil prices are volatile in general is the fact that oil has a very recent history and a current strong status of oligopolistic nature (and OPEC behavior generally), which produces a strong incentive to speculate on it. Now, attacking Iraq, and the war stretching longer and longer (one could argue it's still a war zone there) is another incentive. The speculators are grabbing these excisting issues in the oil market and thus attempting to make money of it, causing the prices to increase. Essentially, it's speculating that's resulting in the prices increasing, but if the oil market wasn't already ill to begin with, this would never happen. While we're at it, we could claim that the fact that Iraq was attacked and is still essentially at war must have had some effect on oil supply.

I took the liberty to do some googling.

"An oil economics specialist, Mamdouh Salameh, who advises the World Bank and the UN Industrial Development Organisation, contends that oil prices would be at less than 1/3 of their current level had the US not invaded iraq. - " (Source - it's worth noticing this is fairly fresh.) Here is a broader article regarding this statement.

"Iraq war fears lift oil prices - a BBC headline"(Source - this is to elaborate that there often are sources for speculation)

"One of the things I find puzzling about the whole oil market discussion is how complicated people seem to make it. They get all wrapped up in stuff about forward markets, hedge funds, etc., and lose sight of the fundamental fact that there are only two things you can do with the world’s oil production: consume it, or store it. - Paul Krugman"(Source - I'm assuming you know who Paul Krugman is)