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Speculators / Rising prices

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UptonStellington

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"Fuel the fire" is emotive. Let's start by assuming that we're talking about those speculators who are rational. Such people speculate about the future demand and supply of oil. Then, using that, they speculate about what the price will be. Then, they buy or sell. Of course, they can turn out to be wrong, and then they will lose money. However, to the extent that they are rational, all they do is reflect the new evaluations of the market, and move the price to reflect those new evaluations.

When people complain about "speculators", they often envision some type of irrational speculator, who is buying oil without a good grasp of the fundamentals, and contrary to what the fundamentals would indicate. There are always some such people in the market, but there are also times in various markets where there is an above average number of such people. Some pretty smart traders (e.g. George Soros) think it is so in today's oil-market, other pretty smart people (e.g. Jim Rogers) think it is not so. If it is so, and if Soros is right, there is nothing to worry about over the longer term. It would imply that prices will end up coming down, the irrational will lose their money.

Almost all commentators (including Soros and Roger) agree that a large part of the price-rise is a rational reflection of two major factors:

  • fundamental new evaluations of future demand and supply
  • the falling value of the dollar

The large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil, driving up the price of oil for future delivery in the same manner that additional demand for contracts for the delivery of a physical barrel today drives up the price for oil on the spot market. As far as the market is concerned, the demand for a barrel of oil that results from the purchase of a futures contract by a speculator is just as real as the demand for a barrel that results from the purchase of a futures contract by a refiner or other user of petroleum. Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and numerous hedge funds speculate. High rollers speculators like Pan Arab Petroleum under the agressive command of Robertino Medici, trades the Dubai crude in a rather new oil exchange, the Dubai Mercantile Exchange (DME).

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The large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil, driving up the price of oil for future delivery in the same manner that additional demand for contracts for the delivery of a physical barrel today drives up the price for oil on the spot market.
Fair enough. However, the question is whether or not the speculators' judgements about that future are correct. If they are, then there's only good to be had, via the price-signals. If they are not, it is they who will pay the cost.
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High rollers speculators like Pan Arab Petroleum under the agressive command of Robertino Medici, trades the Dubai crude in a rather new oil exchange, the Dubai Mercantile Exchange (DME).

The existence of the DME is a good reason to AVOID adding further regulations and increasing margin requirements (one of the proposed "solutions" to speculation) on traders in US commodities exchanges. Further market regulation here will encourage the trading to move to other exchanges like the DME.

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Fair enough.
Just to clarify, this does not mean that speculators are "guilty" of something. Quite the contrary: they provide a valuable market service. [The way I use the term, a "speculator" is simply an investor who deals at the level of buying and selling, without actually taking over and running a business (sometimes also called "outside passive investors").]

Speculators make money by anticipating the future, i.e. they speculate about the future and make money if they are more right than others who are engaged in similar speculation. Speculators look out to the future and see the various factors that will effect demand and supply for oil. Based on the sum of this speculation, they figure that the price of oil will be higher than it has been in recent history. For instance, if oil for 2015 delivery is selling for $80, and speculators think that the demand and supply situation will be far worse than is being anticipated and reflected in that price, then it makes sense for them to buy more future oil. This raises the price of oil-futures.

This acts as a service to oil-producers. Large investments have to made to produce oil. The activities of speculators give producers an idea of the estimated future price from people who are studying the market and putting their money where their estimate is. Even better, a supplier can lock in that future price, by selling in the futures market. That way, the speculator takes over the risk of misjudgment and of any change in factors. For instance, a supplier can sell 2015 oil without worrying about the possibility that the U.S. might suddenly open up ANWR, that Iraq might put millions of barrels a day back on the market or that major consuming utilities will shift to coal/gas/etc. over the next 7 years.

Other than acting as a signal to suppliers, the high future price also puts consumers on notice. Everyone from utilities to car-owners are now on notice that the best estimate of people who do this for a living is that prices will be high at least for a while. Any car owner thinks he knows less than oil-market experts would be advised to act accordingly when it comes to planning whether to buy an Escort or an SUV.

Again, on the consumption side, airline companies often buy fuel in the futures market son that they do not have to risk future prices that are even higher than currently estimated. Here, the speculators bear the risk that the price might go even higher.

In essence, what is happening is an amazingly cool part of a modern financial system, where risk is studying by experts and can then be moved from one person to another.

Now, it is possible for the experts to be wrong. For instance, some speculators -- like Soros -- think that the future estimates have now crossed over to being a bit on the high. Perhaps he's right, perhaps he's wrong. There are brilliant multi-millionaires on either side of the trade. If they are wrong, the speculators who made the wrong judgement will lose money. If they are wrong, we should simply shrug this off, because we'll soon being paying less for gas.

However, if they are right, then they aren't causing the price increase -- they are anticipating it. Not sure where I read this, so I cannot give proper credit, but someone summarizes this very well by saying: don;t shoot the speculators, they're just the messengers.

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Just to clarify, this does not mean that speculators are "guilty" of something. Quite the contrary: they provide a valuable market service. [The way I use the term, a "speculator" is simply an investor who deals at the level of buying and selling, without actually taking over and running a business (sometimes also called "outside passive investors").]

Fair enough ;)

But then the danger is that this is not a speculator in the sense that anyone who claims that speculation is running up the price of oil is using it. As a pejorative. This kind of speculator is not gambling, at least not the ones who are actually able to influence long tem market prices. Anticipating the future is not the same as guessing at it.

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However, if they are right, then they aren't causing the price increase -- they are anticipating it.

The price of a gallon of crude on the world market doubled between 2003 and 2007, which can be legitimately attributed to changes in supply and demand (invasion of Iraq, turmoil in Venezuela and oil-producing parts of Africa, rapid development in southeast Asia and China).

Then, in the last year alone, it doubled again. I have read somewhere, that worldwide, the supply of oil still exceeds present demand by at least 10% or so (and big oil producers are releasing statements that they can meet future demand). So what is causing such increases?

Edited by ~Sophia~
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This sort of line of thinking makes speculation out to be the God of the Gaps.

One thing you forgot is the devaluation of the dollar. In that same time frame the dollar has fallen against every world currency not pegged to it, sometimes by as much as 1/2 as your post on the loonie passing parity with the dollar would point out.

Just an FYI, I have a product line that I sell both in Canadian Dollars and US dollars. In the time frame 2003 to present I have had to more than double the price in US dollars, and the pricing in Canadian dollars has changed by nothing, and still kept up.

I'm quite willing to believe in the idea of speculation, but obviously if someone is speculating then that someone should be findable and his motivations and successes understandable. Long term speculation elevating prices is like God; it's all but anti-axiomatc. Short term speculation certainly exists and it is always self-neutralizing, but the idea that "speculation" is holding up the price of oil for years on end is fantasy.

Someone describe to me this mechanism in detail. How does this "speculation" work?

Edited by KendallJ
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Keynes was supposed to be very bright too; and Kant predicted the existence of Uranus before it was acually discovered. Basically, heavy brain power can still lead to the wrong conclusions. It happens with stunning frequency in all sorts of disciplines. My favorite example is Buffet vs. the Nobel prize winners who ran Long-Term Capital. While Buffett is probably very intelligent, the Nobel Prize guys can probably beat his pants off when it comes to advanced Math. Yet, his reality-focus makes him a billionaire while they end up bankrupt. Then, to change the example a bit, consider Buffett's incorrect view on ethics.

Keynes was a brilliant mathematician as a young man. He was 12th wrangler in the Math Tripos of Combridge in 1905. The Math Tripos makes the Putnam Examination look like a kindergarten exercise. Later in life he became interested in finances and economics. Keynes wrote a treatise on probability theory which is still highly quoted. Perhaps the world would be a slightly better place if J.M.K. had stayed with mathematics.

As a speculator he made and lost fortunes, being set back in the 1929 crash, but he recouped quickly. J.M.K. knew how to make money.

Keynes was also an expert historian and scholar. He rescued Isaac Newton's non-mathematical works from obscurity when he purchased Newton's letters and diaries at auction. The material revealed that Newton was an ueber mystic as well as being the inventor of mathematical physics. To put a point on it, Newton was a God Freak, a mystic and an alchemist. The Newton praised by Alexander Pope was more a figment of Pope's imagination than a reality.

ruveyn

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Keynes was a brilliant mathematician as a young man. He was 12th wrangler in the Math Tripos of Combridge in 1905. ...

As a speculator he made and lost fortunes, ... J.M.K. knew how to make money.

Keynes was also an expert historian and scholar.

Thanks. Interesting details.They reinforce the point that -- extremely brilliant folk -- like Keynes -- can still get some things totally wrong, when they start with the wrong premises.
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But then the danger is that this is not a speculator in the sense that anyone who claims that speculation is running up the price of oil is using it. As a pejorative. This kind of speculator is not gambling, at least not the ones who are actually able to influence long tem market prices. Anticipating the future is not the same as guessing at it.
I agree. In fact, now that I think of it, there are two different pejorative concepts (anti-concept? non-concept?) of "speculator". Sometimes it is used as "gambler", but in the sense of being an irrational activity. The second -- and the one many have in mind in the oil situation -- is of some crafty individual who will bid up prices, knowing that the higher prices are unsustainable, and who will then sell at a profit. Of course, in net, this is an impossible task. Further, in a market the size of the oil-market even short term control is way beyond plausible.

The price of a gallon of crude on the world market doubled between 2003 and 2007, which can be legitimately attributed to changes in supply and demand (invasion of Iraq, turmoil in Venezuela and oil-producing parts of Africa, rapid development in southeast Asia and China).

Then, in the last year alone, it doubled again. I have read somewhere, that worldwide, the supply of oil still exceeds present demand by at least 10% or so (and big oil producers are releasing statements that they can meet future demand). So what is causing such increases?

The terms supply and demand have to be understood as something more than physical quantities. They are quantities at a given price and at given time. In that sense, supply does not exceed demand.

e.g. Oil is around $135 today. If a supplier really wanted to supply more oil and said they would do so @ 130, would they be able to sell? They could clear out all their supply if they were willing to sell a little below the market price.

Similarly, demand is not a single figure -- it assumes a price. Demand in the U.S. has dropped in the last year or so, but only because it is demand at the current prices. If the price were to drop, demand would rise again.

The current price is set by the demand that is forthcoming at various current prices, and the supply that is forthcoming at those prices. As Kendall points out, since we're speaking of a dollar price, that value of the dollars is a critical factor. Also, future expectations of demand and supply play a role. For instance, if the futures price of crude is $130 or thereabouts going out for 5 - 10 years, the suppliers have little urgency to sell a little more today. This is particularly true when so many suppliers are government agents, and today's high prices have ensured that they are not under any political urgency.

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I agree. In fact, now that I think of it, there are two different pejorative concepts (anti-concept? non-concept?) of "speculator". Sometimes it is used as "gambler", but in the sense of being an irrational activity. The second -- and the one many have in mind in the oil situation -- is of some crafty individual who will bid up prices, knowing that the higher prices are unsustainable, and who will then sell at a profit. Of course, in net, this is an impossible task. Further, in a market the size of the oil-market even short term control is way beyond plausible.

I think it is an anti-concept. The whole gambit is to lump them all together. I liked how wiki looked at it.

http://en.wikipedia.org/wiki/Speculation

Take out hedging, take out investing, take out arbitrage, and what's left is speculation. Of course the problem is that what's left is short term and/or pretty darn small. It cannot be driving oil prices. The other 3 are rational uses of the futures market, and if they are causing the increase in price it has a rational basis, and cannot be "blamed" as such.

Every time I look up speculation in tehe oil market I come back to the 2006 congressional study which is where this rotten idea seems to have come from. I haven't had a chance to read it, but my suspicion is it's going to be very self-serving. Govt needs a scapegoat, and today it happens to be the "speculator."

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This sort of line of thinking makes speculation out to be the God of the Gaps.

The gaps left by the producers themselves, yes. I know that is not what the GotG refers to, but it really is about filling in gaps.

Information cost money to obtain, and has different costs to different people. Some speculators/investors specialise in getting the information cheaper or sooner than others, and so filling the gaps in the market for what is traded on the basis of that information. Snerd rightly raises the example of the futures markets transferring risks from one party to another. The producer who faces the risk in the first instance could try to get the information required to mitigate the risk, but it is more cost effective for them to sell the risk to another, ie the speculator, who is better placed to get and/or use the information effectively.

Another set of gaps is in the interpretation and processing of the information rather than the information itself. Different people use different methodologies, placing different degrees of importance on different things or calculating differently. There are a few different methodologies for valuation, such as capitalisation via EBIT multiples and its variants, PE multiples, and of course DCF. A real professional is supposed to use two, one for main and the other for cross-checking, and while there are guidelines on which to use under which circumstances there are no hard and fast rules.

Other gaps are entirely bad-law in origin, even leaving aside insider-trading law. For instance, in many jurisdictions it is illegal to continue to purchase stock in a company that you own more than 20% of without making a formal take-over offer. Those who own less can still purchase stock, and often do in anticipation of the required offer. However they get their information and process it, they will trade stock depending on their various expectations of the timing and the price of the offer. Differing opinions means the price moves slowly over time, rather than jumping straight away to the offer price.

I'm quite willing to believe in the idea of speculation, but obviously if someone is speculating then that someone should be findable and his motivations and successes understandable.

Again SNerd is correct. Speculators and speculation are real people and their activities. A speculator is anyone who forms an opinion on the future price of something that is divergent enough from the current price (ie after adjusting for holding costs etc) that a pair of trades now and in the future will be profitable: "I speculate that so and so price is appropriate..." Every day-trader is a speculator, as is every broker working on their own account or on their principal's account, every funds manager for various firms, and so on, to the extent that they are not investors.

What distinguishes speculators from investors is that investors do the same thing plus one thing more: they take an active interest in what the company or industry is doing and place a value on the ability to influence it. Investors will place a value on the ability to vote, or will make suggestions to the physical traders in the commodities, and so on.

The distinction is real, but it isn't of any particular significance for the smooth functioning of markets. Valuing the ability to vote or otherwise meaningfully influence the physical course of events doesn't alter the fact that the pursuit of gains is the driver. That ability is just another means of altering the risks faced and potential returns to be gained. It has a definite cash value accordingly, known as the premium-for-control in the valuation of take-overs for instance as Snerd raises. But it is not just limited to takeovers, but of any instance of someone valuing the ability to have a say, no matter how small. Besides the above traders, a particular concrete example of this that I know of is that Rupert Murdoch created two outstanding stock classes for the News Corporation: the ones with voting rights and the ones without. Investors trade the one with the voting rights, while speculators trade in both. As you can imagine, the stock with the voting rights trades slightly higher.

the idea that "speculation" is holding up the price of oil for years on end is fantasy.

Entirely true, but it doesn't make speculation any the less real just because it doesn't do what demagogues claim it does.

Someone describe to me this mechanism in detail. How does this "speculation" work?

Same as investing generally, minus any desire to influence the industry generating the root value. You gather the numbers, evaluate them and form an opinion, and trade accordingly. That in turn influences the industry anyway by altering the prices the participants pay and receive, filling the information gaps left by those participants whose time is better spent doing other things they're more productive at.

Speculation... cannot be driving oil prices.

As the root cause, no, but it is a major efficient cause. The root causes are whatever is occasioning speculators (and investors) to risk their capital in this fashion. Who or what is making the gaps in the first place? Some are legitimate, some are not. Some speculators might be right, and others wrong, but no matter what they are not the root cause (assuming no fraud like deliberate misinformation etc).

I don't mind using it as it does have some meaningful content, but I hold no major candle for retention of the term: "non-voting investor" and similar constructions would do just as well. We could abandon the term completely and not really lose anything important. You're right to dismiss speculators as having any blame, and right to downplay the importance of the term, but despite that you're wrong to say that 'speculator' is only meaningless pejorative.

JJM

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Flipping through channels, I found three or four oil-analysts (from Oppenheimer and some other financial companies) testifying before congress, and advising the committee how to reduce the impact of "speculators". Damn them! There's always some private businessman willing to bring the power of government to bear on rivals.

The worst of these guys was a character named Fadel Gheit who works for Oppenheimer. He had this notion of "real demand" and "speculator demand", and suggested limiting the latter. For instance many pension funds have increased their commodity positions in order to hedge the dollar. It appears that Mr. Gheit wants to deny them this avenue.

Now, for all I know, the pension funds are late comers to the game and are being irrational. For all I know they're really wrong, and we're now into bubble valuations, where the tail investors are following the smarter money blindly. For all I know, Mr. Gheit's lower price-evaluations are the better long-term bets. If so, let Mr. Gheit bet his company's money against them and make a killing! Instead, he's whining and wants the U.S. government to do his job for him. [Orren Boyle.]

Edited by softwareNerd
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For instance many pension funds have increased their commodity positions in order to hedge the dollar. It appears that Mr. Gheit wants to deny them this avenue.

Inflation hedge. Perfectly rational the more the FED screws the currency pooch. The irony is that for the average joe, their inflation hedge is their house, and we have the double wammy of a housing meltdown simultaneously with inflationary pressure.

So does this mean we can blame the "speculatory pressure" on commodities on the FED's monetary policy??? Inflation "creates" demand for tangible commodities. Whoda thunk. :)

I don't mind using it as it does have some meaningful content, but I hold no major candle for retention of the term: "non-voting investor" and similar constructions would do just as well. We could abandon the term completely and not really lose anything important. You're right to dismiss speculators as having any blame, and right to downplay the importance of the term, but despite that you're wrong to say that 'speculator' is only meaningless pejorative.

OK, John, I think I see the distinction you're driving at. I'll conced the definition. Sounds like we agree on the essential impacts tho. I think I'm off to see this congressional report's claims on speculation.

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From a lobbying perspective, do environmentalists have more money to spend towards lobbyists and affect public policy, or do energy companies? I would assume the latter would have them outspent by a longshot. How does one explain the disparity in influence of environmental groups then when it comes to drilling for oil?

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From a lobbying perspective, do environmentalists have more money to spend towards lobbyists and affect public policy, or do energy companies? I would assume the latter would have them outspent by a longshot. How does one explain the disparity in influence of environmental groups then when it comes to drilling for oil?

Well, you'd have to confirm that assumption.

Also the inherent premise in the question is that the influence on public policy is a function of and only a function of lobbying budgets.

From a lobbying perspective, do environmentalists have more money to spend towards lobbyists and affect public policy, or do energy companies? I would assume the latter would have them outspent by a longshot. How does one explain the disparity in influence of environmental groups then when it comes to drilling for oil?

Wait! It's a trick question. The answer is: speculators!

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Well, you'd have to confirm that assumption.

Also the inherent premise in the question is that the influence on public policy is a function of and only a function of lobbying budgets.

I guess I was just looking at some of the statements I've read here that environmentalist groups have all this clout. From what I've read just on this thread:

...to the extent that enviros are constraining future supply...

...I'm all for blaming the enviros for making things worse...

...An environmental group called World Wildlife Fund Canada is lobbying to delay the current round of leasing bids...

...American environmental groups have already succeeded in delaying Arctic offshore drilling...

If not lobbying, where does this power come from? If we have a cash and carry government, why can't big business just buy more government influence (not that I'm advocating buying gov't influence)? Like I said, the money clearly has to be on the side of the energy companies.

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Analysis of oil price vs. value of a dollar. Click here

And your particular argument is what exactly? You find this article compelling, or you have simply found someone who disagrees with my statement? In addition, while you've found someone who seems to want to say, forget inflation, that does not make the case that your "What else could it be but speculation" holds true.

In addition, his conclusion is not that the two are not in someway related or even causal, but that "my main conclusion is that one should be careful in imputing causality." I think that's good advice all around wouldn't you say?

Edited by KendallJ
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And your particular argument is what exactly?

I have not been avoiding stating it - I just don't have one. I would like to find an answer.

You find this article compelling, or you have simply found someone who disagrees with my statement?

I found the article informative and thought it may also be for others here so I passed it along. As you noticed, it does not actually exclude the value of a dollar as a player in the equation.

I am not driven by the goal to prove you (or anyone) wrong.

that does not make the case that your "What else could it be but speculation" holds true.

I have not said that. I said: So what is causing such increases?

You assumed that I think speculation is the only possible alternative answer.

Edited by ~Sophia~
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What particular points do you find salient and relative?

Recent movements in oil prices might due to nominal factors, in which case one could say a weak dollar (in the sense of currency losing value against a bundle of goods) is associated with a higher dollar price of oil. But there could be relative price changes that would induce dollar declines.

-----------

I was looking at this chart here.

It looks like something happened around May-Sep of 2007? Also, based on historical relationship of gold to oil - gold appears to be cheap right now (gold price is not rising as fast as the dollar's loss of purchasing power) (or is it that oil is artificially high?)

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Thanks Sophia, I've had a chance to look throug the article and I think it's a highly suspect example of skepticism run amok. I think the errors are epitemological in formulating his arguments and as such, it is not the economic basis I would argue with but the basic reasoning.

It might look interesting on the surface, but the evidence he uses to make his cases is faulty, and in a turn of the weirdest logic I've seen he actually argues the monetary policy does in fact determine some portion of both the exchange rate and commodity prices, but we can't be sure of any cause an effect because it's so convoluted. It's skepticism with a hint of empiricism mixed in.

He's talking about effects as if they are causeless things. Inflation is a mechanism that is well studied and known, and even he admits that monetary policy drives both of these outputs. Yes, there are many factors affecting exchange rate but to the extent that it is affected by inflation of the monetary supply, it's effect on commodity prices is causal. Integrate that with what you see with regard to comodities broadly, restulting price increases now occuring, exchange rates broadly and the only conclusion is someone's been inflating the dollar. There maybe magnifying effects, reverse effects, etc. But the magnitude of the main effect is big, obvious and disasterous.

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From the International Herald Tribune:

http://www.iht.com/articles/2008/06/24/bus.../oil.php?page=2

One of the leading energy experts in the United States was expected to tell a congressional committee Wednesday that traditional economic factors were responsible for most of the run-up in oil prices and caution against looking for simplistic solutions to one of the world's most complex markets.

A few excerpts:

Commodity markets have become increasingly attractive for investors seeking to diversify their portfolios and who are looking for better returns than stocks, bonds or currencies. That growing integration of financial markets with the commercial oil market has provided a "significant" impetus to prices, according to a draft of Yergin's prepared remarks.

But behind that trend, according to Yergin's statement, there are a variety of factors that have facilitated the run-up, including insufficient investments in exploration and refining activities, soaring energy demand from Asia and a long list of supply disruptions.

These factors have left the global oil industry with very little capacity to increase oil supplies. There are now less than two million barrels a day of unused capacity, a safety cushion that has declined from about five million barrels a day in 2002.

"In a tight market, prices go up," Yergin's statement said. "And a tight market is also a market that is more crisis-prone, more vulnerable to the impact of disruptions."

Some interesting stuff regarding "speculation":

The House Energy and Commerce subcommittee, which held a hearing Monday, said that speculators had increased their share of oil futures contracts on the New York Mercantile Exchange to 71 percent this year, from 37 percent in 2000. At the same time, contracts held by traditional oil users have fallen to less than 30 percent from more than 60 percent.

"Make no mistake about it, the excessive speculation in commodity markets is having a devastating effect at the gas pump that is rippling through our entire economy," said Representative Bart Stupak, Democrat of Michigan, whose office released the figures.

But that interpretation is disputed by the U.S. the Commodity Futures Trading Commission, the government regulator overseeing commodity trading on the Nymex, which reported that speculative positions on oil markets were currently close to their lowest levels in nearly a year. In fact, the positions held by noncommercial traders, meaning investors that were not seeking delivery of physical oil each month, were net shorts for crude oil since February 2007.

The CFTC also pointed out that the figure cited by the House subcommittee Monday substantially overstated the pressure that these speculative position had on pushing prices up. For example, that percentage counts swaps dealers who are in the market both as buyers, who push prices up, and as sellers, who push prices down. The percentage may also overstate the amount of actual speculation, because it includes swaps dealers acting for clients who are not speculating.

I found these last couple of paragraphs to be particularly interesting:

OPEC faces considerable uncertainty over how much to invest in supplying oil, with crude demand seen in the range of 29 million to 38 million barrels a day by 2020, a document presented during private talks between the cartel and the European Union on Tuesday showed, Reuters reported from Brussels.

The members of the Organization of Petroleum Exporting Countries pump about 32 million barrels a day, but changes in climate policy, rising car ownership in developing countries and decisions by non-OPEC oil producers could alter consumption patterns.

"Recent policy proposals to address climate change and renewables targets could have substantial impacts upon the amount of oil that needs to be supplied by OPEC," according to the document.

The enviros have screwed us again.

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Thanks Sophia, I've had a chance to look throug the article and I think it's a highly suspect example of skepticism run amok.

He's talking about effects as if they are causeless things.

I don't agree with your evaluation. The author does not imply that we can not know because the issue is too complicated. He is simply attempting to determine the relationship looking at the data and points out that the data does not, in fact, support the claim of direct causation. He does not attack absolutes or certainty or reason.

To determine if the price change is due to inflation he should have looked at gold but I do not judge him as a skeptic.

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