bcfromfl
join:2007-09-06
Youngstown, FL
 ·AT&T Southeast
| reply to alternate energy
Re: Why is gas/oil going so high?
I'm a futures trader. Your question has a complex answer, but can be boiled down somewhat.
Increased international wealth has pretty much exhausted conventional investment into new large businesses and industries. There is a "laziness" to this new wealth, such that wealthy investors don't want to actively manage their funds or be involved in creating something new. Thus, it gets funneled largely into hedge funds which "guarantee" a better-than-average rate of return from existing investment vehicles.
A huge influx of buy-side capital into any futures market, without corresponding sell-side pressure, will force prices higher. While it is true that these hedge funds must close out their positions (i.e. sell their long contracts) when that contract month closes, the upward pressure from forward months keeps the prices up.
Crude is also priced using the U.S. Dollar as a standard. Since the relative strength of the U.S. Dollar has been falling against foreign currencies, this devalues the purchasing power of the Dollar for a barrel of crude. In some markets, the Euro is now being used as the new standard because the Dollar is so pitiful. (So much for the "strong Dollar policy" by the U.S. Treasury...)
Now, for the conspiratorial side of things...
There is some suspicion that governments such as Nigeria back the militants that attack oil concerns, which spike prices higher with a "terrorist premium". These premiums don't entirely back out of the futures markets when the violence subsides. So, by giving some hoodlums a relatively small sum of money, the government can benefit from millions in increased revenues.
It's also possible that oil-rich countries are manipulating oil futures for their benefit. Similar to the above example, by taking a relatively "small" amount of money (say, $25 million) and buying futures contracts, they can boost prices a few cents, or even a dollar or two, and reap many millions -- or even billions -- in increased revenues.
Even with increased demand from India and China, I've heard several knowledgeable analysts claim that considering the present international supply and demand, crude should only be trading in the $50-$55 range.
Publicly-traded oil companies only account for about 10% of the world's oil production...the rest are government-owned. The increased cost of a gallon of gas is essentially a "tax" that benefits shareholders of oil companies, pensions and hedge funds that invest in energy stocks and/or futures markets, and oil-rich nations. Since the poor and middle-class are hit hardest by such increased weekly expenditures, this becomes yet another example of the funneling of wealth to the rich.
The disparity between the amount of wealth controlled by the top 1% of the population and the rest of us, is indeed getting larger and larger. |
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