I’ve been following the stock markets closely for the past month and a half - in particular the oil industry as that’s where all my stocks are placed. As much as I hate oil and love the environment, I would be foolish otherwise to place my investments elsewhere as other industries are consistently losing money. There’s a lot of finger-pointing as to why these oil prices are record high, but I can tell you.
Some people blame supply and demand - is there enough?
Others blame speculation - the commodities market and stock owners for artificially inflating the price of oil.
It also doesn’t help when news reports that something bad related to energy and politics is happening across the world, that the price of a barrel skyrockets.
I’ll tell you what it is. Most assuredly, supplies have shrunk and demand has increased. But, you can’t convince me that between the winter and summer of 2008, that automobile and scooter factories have sold a record amount of vehicles. In fact, vehicle sales have fallen drastically over the past year due to the high oil prices. So while supply has decreased to a degree, it cannot account for more these record high oil prices. Sure, we as a world are consuming more - but not by the amount which prices of oil has outstripped the sales of transportation.
Some people will blame the OPEC producing nations such as the Saudis.
The Saudis can produce oil consistently, they’ve even offered up increasing supply in July - however, the price of oil continued to increase. So they announce they will increase output but yet the price still increases. All along, the OPEC nations have said it’s speculators, and I’m beginning to believe it’s the truth.
Brazil can even produce oil (and their own fuel is ethanol), and yet we still see record high prices.
Russia has tremedous reserves yet to even be tapped, yet we still see record high prices.
The U.S. announced yesterday that they found a huge amount of extra reserves available for the country. Oil dropped. Then we waited for the Federal Reserve meeting (FOMC) to announce what they were going to do with interest rates. Oil continued to drop because speculators were concerned that an increase in interest to combat inflation would stem the price of oil.
As soon as the FOMC announced they were going to leave rates unchanged, the price of oil went back up to the half-way point. The oil market breathed a sigh of relief as we could make more money off of our investments. Come Thursday 6/26/08, crude oil prices hit an all-time high of $140/barrel. The rest of the non-energy market took a major tumble. Was this a supply related issue? NO. It was just a matter of words that drove energy down from $130 up to $140.
The fed on the other hand has said that speculation is to blame for the rise in oil prices a few weeks back - and they have been correct all along. I believe the fed has taken the correct actions. Aside from the record high price of oil, our economy would be turning around otherwise. The fed is not responsible for the high price of oil - the problem lies with the fact that the Fed does not have any control over the price of oil as it has run away due to speculation. If they raise inflation, they would be hurting other portions of the economy which would be working fine if this one major problem wasn’t present.
What really needs to happen here is drastic and immediate government intervention (as well as the SEC) into the commodities and stock market speculation to curb the overwhelming price of energy. This is our one and oil solution. While drilling and further trading with OPEC nations will help to a very small degree, it will not stem the curve of inflation unless the US Government and Congress steps in to limit speculators. This is our one and only solution for the time being.
As much as I like to see myself profit, I also don’t like the misfortune of others.
I know what is happening here because I am a speculator and investor. I watch the news and news feeds from second to second. All the indicators point to speculation as the major cause of our current economic problems.
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