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  • Demand, Not Speculation, Causing Rise In Oil Prices

    A major plank of Speaker Nancy Pelosi’s (D-CA) efforts to convince the American people that liberals actually want to reduce gas prices is a bill that adds “new restrictions for commodity traders whose speculation has driven up the price of oil.” But as liberal New York Times columnist Paul Krugman shows today, blaming speculators for the price of gas is long on politics and short on reality. Krugman writes:

    Why are politicians so eager to pin the blame for oil prices on speculators? Because it lets them believe that we don’t have to adapt to a world of expensive gas.

    Is speculation playing a role in high oil prices? It’s not out of the question. Economists were right to scoff at Mr. Masters — buying a futures contract doesn’t directly reduce the supply of oil to consumers — but under some circumstances, speculation in the oil futures market can indirectly raise prices, encouraging producers and other players to hoard oil rather than making it available for use.

    Whether that’s happening now is a subject of highly technical dispute. … Suffice it to say that some economists, myself included, make much of the fact that the usual telltale signs of a speculative price boom are missing. But other economists argue, in effect, that absence of evidence isn’t solid evidence of absence.

    What about those who argue that speculative excess is the only way to explain the speed with which oil prices have risen? Well, I have two words for them: iron ore.

    You see, iron ore isn’t traded on a global exchange; its price is set in direct deals between producers and consumers. So there’s no easy way to speculate on ore prices. Yet the price of iron ore, like that of oil, has surged over the past year. In particular, the price Chinese steel makers pay to Australian mines has just jumped 96 percent. This suggests that growing demand from emerging economies, not speculation, is the real story behind rising prices of raw materials, oil included.

    Posted in Energy [slideshow_deploy]

    4 Responses to Demand, Not Speculation, Causing Rise In Oil Prices

    1. RW, India says:

      Yeah right, whoever heard of the prices DOUBLING in ONE year ?

      What, are the humans taking bubble-baths in crude now ?

      This price hike IS a bubble and burst it WILL.

      Although it's a blessing in disguise because alternative energy becomes REALLY competitive at these levels. Sadly our politicians are too selfish to look beyond into the light.

    2. Darvin Dowdy says:

      How about manipulation rather than speculation? But since we're speculating, lets make it wild speculation.

      Who do you think Opec members would like to see as the next President of the U.S.? Huhm? Someone who might be more sympathetic to Islamic nations and more hostile towards Israel, maybe? Could it also be common knowledge amongst these likely Opec manipulators that the American public is caught up in an irrational anger over the price of a gallon of gas? And, deprived of this ability to reason, they simply blame George Bush and the Republicans? And, of course there's the main stream media helping stoke the fire. So by Opecs continuing to close the spigot and slow the flow of oil, that results in an increase in hostility towards the GOP.

      And lets try to imagine 1/21/09 and President Obama picks up the phone and calls all of the Opec members, asking them to increase supply so that the price will go down. And they comply, "yes sir!" And sure enough supplies increase, the price goes down and domestic producers put their drilling tools back in storage. Again. The dem's are hero's and the GOP is dung.

      So [A + 2 = 4]. What is "A"? Forgive a little triangulation here. No way to prove it. Or is there? Mostly this tactic is used against our side. But I wonder what the U.S. voter would do if they knew that they were being had. Or strongly suspected it. And the ruse being perpetuated by the likes of Opec for obvious reasons. Or reasons that should be obvious. Darvin Dowdy

    3. FALSEIDEA(Wisconsin) says:

      In the 70s there literally was a supply and demand problem. It was brought on by OPEC's embargo of oil. At that time there were gas lines and signs at gas stations that read "OUT of OIL" and "No GAS Today".

      So, I was really confused when the Saudi's said they would increase production and the price of oil actually went up. Then I hear it was because they don't "have the right kind of oil". so why did prices go up in the 70s again if OPEC oil isn't the right kind of oil- too sour I guess.

      Now, I haven't seen those signs of the 70s- or anything even close. However, I have seen independent truckers and equipment operators parking their trucks.

      People in this country are suffering big time because of Oil. Because of their failure to curb "investors" (read speculators) I believe every member of congress, republican or democrat should be voted out of office.

      There is one great solution to this issue drill. And what i mean is do what Norway did. Nationalize the oil. Then use the proceeds to pay for all the idiotic entitlements we have in this country which we can't afford e.g. Social Security, Medicare et al. Now doesn't that make sense?

    4. Pingback: Morning Bell: Pelosi Asks, We Answer | The Foundry: Conservative Policy News.

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