Bubble, bubble, oil and trouble. Fraud!

[robinhoooood]

IMO, thats exactly correct. It has much more to do with a very week, dying dollar.

Ok... I agree... but I mean.... the price of everything is derived first from supply and demand... right? I mean... unless I missed something in Econ 101...

So, Supply and Demand being very close in the world would lead to an increase in price... add in the depreciation of the dollar and the price is driven up further... add in WARRANTED Speculation and the price goes up further.... I mean why is it people can't speculate on a commodity.. so as an astute observer if I realize that given the supply and demand picture of oil... it will be heading up in price and I decide as an investor to buy energy and oil in various manners does that make me an evil speculator? Or does it make me and intelligent trader... speculating prices of commodities and any stock is required to make money... so if there is good reason oil could be heading higher I don't see why they shouldn't buy it....

So again I say there is a bit more to the price than just speculation....

[watchman]

"A lightbulb burns brightest just before it goes out."

There are technologies on the horizon that will make oil obsolete under a decade. This could be the big oil industry's "last hurrah." The market has been known to be manipulated.

I remember when nuclear energy was going to make electricity nearly free. Back then an electric bill of $20.00 was outrageous.

And there was the promise of solar power, wind power, hydrogen cells and so many others.

I am not so quick to write off oil as an important and much needed source for the foreseeable future.

I am more concerned that the "bight light" being the U.S. power which rather than fading, simply "blinks" brightly for a second and then goes dark...

[Mulligan]

So then let me see if I understand.... you are saying the price of oil has almost nothing to do with supply and demand?? Just want to make sure I understand your analogy....

Well, maybe I should have said, normal supply and demand causes price fluctuations, sure, but not the outrages spike in oil prices we are seeing the last year. The supply and demand hasn't changed enough to justify the current prices.

[Mulligan]

So, Supply and Demand being very close in the world would lead to an increase in price... add in the depreciation of the dollar and the price is driven up further... add in WARRANTED Speculation and the price goes up further.... I mean why is it people can't speculate on a commodity.. so as an astute observer if I realize that given the supply and demand picture of oil... it will be heading up in price and I decide as an investor to buy energy and oil in various manners does that make me an evil speculator? Or does it make me and intelligent trader... speculating prices of commodities and any stock is required to make money... so if there is good reason oil could be heading higher I don't see why they shouldn't buy it....

So again I say there is a bit more to the price than just speculation....

Exactly. And that's why oil prices are spiking up.....like crazy up. The same case can be made for real estate speculators. Nothing wrong with making a profit, while handing out teaser loans to keep the real estate values going up until no one can pay the bill. Then the real estate market tanks, prices fall, interest rates go down, and it starts all over again. That's why I said in the OP that oil will (or can) do the same thing. It's called a bubble. And the only people that get clobbered are the ones that can't afford it. I mean I've seen the real estate bubble burst twice now (in 20 years), and we went through the same thing with oil in the 70's. Gas lines???? If there was an oil shortage, like in the 70's we'd see gas lines again. Instead, we got plenty of gas, just double/triple the price in one year. :shocked

And really now. Do you really think the powers that be are seriously going to seek alternative energy other than lip service? There's just too much invested, too much at stake and too much money to be made with oil to allow a cheaper less manipulated fuel source other than oil. Oil is simply being ransomed now.

[robinhoooood]

Well, maybe I should have said, normal supply and demand causes price fluctuations, sure, but not the outrages spike in oil prices we are seeing the last year. The supply and demand hasn't changed enough to justify the current prices.

Ok a couple of things to consider... You are talking about supply and demand within a market that is elastic... where there is surplus of an item and variation in the supply and demand. The supply and demand in the oil market is very close... do you have the specific numbers to contest this? And if so please cite them.... It seems to be debatable, but most experts would agree right now that the oil market supply and demand is very close right now and will be for the foreseeable future. Also another thing... the ultimate demand for oil does not fluctuate to the downside... the demand for oil will continue to grow as the demand for energy grows... which is constantly moving up because the world strives to grow eternally...if it does not that is bad for the economy, in our setup anyway... So the demand will continue to grow until it cannot anymore due to supply constraints.

As far as the comparison to the housing bubbles... this housing crash was caused due to artificial demand.... the houses were built ahead of the demand... far ahead in fact... and then people were enticed into these houses like you said with teaser rates and etc etc.... they had to do these things to make money on the investment of all those houses that were never needed... and of course when the credit market contracted and rates went up people could not afford it.... this is very different from the oil market... oil IS in demand... to the point that we MUST produce more... we are using all of it possible... and this will not change in the future... we will be striving to use every drop of oil we can for at least the next 20 years while other technologies are brought on and so forth... so you see there is nothing artificial about the demand of oil... which makes it why it is very unlikely you will see a major price collapse anytime soon.... am I making sense?

[Mulligan]

Just to further support my OP. The price of oil dropped $20, not because of supply and demand but because speculators are moving their money from oil to something else.

A barrel of light sweet crude tumbled $3.09 to settle at $127.95 on the New York Mercantile Exchange, down nearly $20 from its record high of $147.27, reached just weeks ago.

http://www.msnbc.msn.com/id/3683270/

[Bernardd]

Ok a couple of things to consider... You are talking about supply and demand within a market that is elastic... where there is surplus of an item and variation in the supply and demand. The supply and demand in the oil market is very close... do you have the specific numbers to contest this? And if so please cite them.... It seems to be debatable, but most experts would agree right now that the oil market supply and demand is very close right now and will be for the foreseeable future. Also another thing... the ultimate demand for oil does not fluctuate to the downside... the demand for oil will continue to grow as the demand for energy grows... which is constantly moving up because the world strives to grow eternally...if it does not that is bad for the economy, in our setup anyway... So the demand will continue to grow until it cannot anymore due to supply constraints.

As far as the comparison to the housing bubbles... this housing crash was caused due to artificial demand.... the houses were built ahead of the demand... far ahead in fact... and then people were enticed into these houses like you said with teaser rates and etc etc.... they had to do these things to make money on the investment of all those houses that were never needed... and of course when the credit market contracted and rates went up people could not afford it.... this is very different from the oil market... oil IS in demand... to the point that we MUST produce more... we are using all of it possible... and this will not change in the future... we will be striving to use every drop of oil we can for at least the next 20 years while other technologies are brought on and so forth... so you see there is nothing artificial about the demand of oil... which makes it why it is very unlikely you will see a major price collapse anytime soon.... am I making sense?

I don't know if I accept that "artificial" demand aspect. The demand is what it is based on whatever offeres are being offered. If the powers that be decide to ease the restrictions on obtaining a mortgage, that's the equivalent of dropping the price. Thus, a lower price (or not having to put any money down) equates to an increase in demand, and that's exactly what we saw.


As for oil, we're seeing the same thing. As the price continues to increase, the demand will decrease. As you say, the demand for oil WILL continue to grow ... at the price it's at right now. However, if the price continues to increase, there will come a point when the demand will force the price down, unless of course another energy solution is developed.

Market speculators (aka. investors) work in the same arena. They see the increase demand for fuel in the not too distant future. Thus, they're willing to by futures. Eventually there will come a point where the big sell-off will occur. Otherwise, we'd all do well to start investing in oil futures.

[Cognac]

I think I see what your saying, but I"ll have to relate it so something simpler for me to understand.

Art paintings are not usefull items, but they are a fairly rare commodity.
The price of art is based not on use or rarity, but on what someone will pay for it. Thus speculators (dealers) may inflate prices based on artificial paramaters. Its up to the buyer to take it or leave it.

So the oil price isn't based on usefullness, nor on supply or demand, but on what price buyers are still willing to pay for it ?

Or to put another way: because oil has value, people will trade in it as a tradeable commodity. Use and need are secondary to the trade value.

[Mulligan]

I think I see what your saying, but I"ll have to relate it so something simpler for me to understand.

Art paintings are not usefull items, but they are a fairly rare commodity.
The price of art is based not on use or rarity, but on what someone will pay for it. Thus speculators (dealers) may inflate prices based on artificial paramaters. Its up to the buyer to take it or leave it.

So the oil price isn't based on usefullness, nor on supply or demand, but on what price buyers are still willing to pay for it ?

Or to put another way: because oil has value, people will trade in it as a tradeable commodity. Use and need are secondary to the trade value.

Yes, correct, though art is not a basic need so there isn't as much desperation associated with acquiring it. Oil and homes are a necessity. When the housing market became accessible to more people, due to low interest (not necessarily low prices) the average people started buying houses on the assumption the market value would continue to increase and it became an investment with a great return due to the equity. As the real estate bubble built, speculators started moving their money into real estate that started to inflate housing prices until it reached a point where bad loans came into play, and values peeked to the point many could not either afford them or couldn't afford the loans. Once for closures start, it kills the market. This happened in the early 90's in California. While I could afford the payments, my house's value dropped below what we owed.
So the same with oil. Speculators move their money from real estate and stock, to commodities thus artificially driving up the price. Unless there is a crisis, either real or artificially created, the price of the oil bubble could burst just like stocks and housing. We saw this principal just this week. It has nothing to do with supply and demand. If it was actually being caused by a shortage of oil, we'd see gas lines like the 70's. All this is being manipulated, and if oil prices actually start to tank, you will see the Iranian attack. Too much money involved.

[WhitemoonG]

I have a hard time buying the idea that supply and demand has little to do with it, that the main factors are speculators, dollar devaluation removed from any supply/demand impact.

Commentators I've heard mention that US OIL/gasoline consumption has either been constant or dropped slightly the last 2-3 years, and the overall worldwide oil production/supply annually has been relatively constant. What is a major new change, however, is that despite static US demand/consumption and static overall annual world oil production/supply, the overall WORLDWIDE
DEMAND for oil has spiked up significantly due to the rapidly growing industrialized economies of China and India, so, naturally, there is increasing pressure for worldwide prices of barrels of oil to RISE, RISE,RISE.

And, speculators make this much worse buy driving prices even higher by betting that not much will be done to improve supply in the near future, based on the inability of the USA to add any new refining capacity over the last 30 years, or inability of the USA to utilize its own vast reserves, thanks to very extreme,lopsided views of the greenie lobby prevailing in Congress, which refuses to permit such.

Not saying that there shouldn't be any review, or possibly some added regulation of oil speculators, but the difficulty is determining what extra regulatory control is reasonable, short of a complete government takeover, etc. and

the fact that worldwide speculators will laugh and continue to do what they do, unfazed by US federal code that has no authority over them.

If the leftists like Pelosi would have us believe that adequate supply, or drilling for more supply wouldn't affect much, why were they blabbing about wishing OPEC would increase production? Why the absolutely silly and embarrassing congressional support of wanting to "Sue" OPEC? (as if US civil/criminal court had any jurisdiction whatsoever)

Interestingly, the mere comments by Bush last week, removing the executive order prohibiting offshore drilling, and increasing public sentiment to DRILL seemed to have the reverse effect, where speculators betting on future considerations were suddenly not so sure that the US will do nothing to improve supply, and the price dropped 20 dollars a barrel within a day or two.


I can't see where one can state that supply and demand has nothing, or little, to do with things here.