Speculators, not OPEC, 'causing oil price spike'

[Violet Fashion by Mindy]

A former Iraqi oil minister says record high oil prices are more to do with speculators, including central banks, than supply and demand.


Prime Minister Kevin Rudd is pressuring G8 leaders to push for OPEC to increase oil supply.


Isam Chalabi was Iraq's oil minister before the first Gulf War and has more than 40 years experience in the industry.


He says Mr Rudd's strategy will not work.


"The question of prices today is not related to supply and demand fundamentals - everybody knows that," he told AM.


"Everybody has said so and hence it is not a matter of increasing supplies because whoever is in need of oil has been able to get it, so there is no need of problem of getting the oil."


Brian Wilson, former British energy minister under Tony Blair, agrees.


"What takes it from $US100 to $US130 is that there is a huge speculative element and the actual connection between the paper trading price of oil and anything that is happening in the physical world is now extremely remote," he told the BBC.


Mr Chalabi says only regulation of oil trading will stop the price spike.


"The world consumes 85 million barrels a day, you have trading going on over a billion - some people estimate up to two billion - barrels a day, so if something really happens to put a hold on that, I believe that the price spike will not continue and maybe it will start to decrease," he said.



http://www.abc.net.au/news/stories/2008/06/10/2269901.htm

[Winger]

Speculation is of itself driven by several things.....speculation of demand, speculation of conflict & speculation of the value of currency. They're speculating that the price will go up tomorrow hence the boost. How long this will continue is of course speculation but I think a reversal will occur. I speculate this will happen later than sooner however.

[Flagg]

Any relation to Ahmed Chalabi perhaps?

I'm seriously tempted to close this thread as propaganda

Say it with me people!

IN FLAAAAA SHUN

Is it the speculators fault that milk has exploded in value too?

How about every other commodity and necessity?

If it wasn't so serious it would be silly

[dava]

including central banks

This is funny.
Almost every central bank on this planet has inflation control as one of its targets. So why exactly would they feed inflation by speculating on oil?

[wotsnext]

I'm sure this has a lot to do with the US printing paper money, they are simply creating a vicious circle, the devalued dollar buys less so they simply print more to make up the shortfall, and it goes on and on.

[delio]

Rising demand from booming third world economies and other developing countries (i.e. Persian Gulf/Middle Eastern countries, China, India, Russia, etc) is the may factor driving the price of gas upward so steeply.

..demand hasn't been tempered as much as would normally occurs because most of the biggest culprits subsidize it.

[Limeyfellow]

Rising demand takes into some account, but the fact the market is speculating on billions of barrels of oil a year, when only millions are pumped, has about half the price of oil accounted for. The fact oil is traded amongst a number of the same oil dealers to one another before it gets to the open market causes problems, and sooner or later the bubble is going to bust like what happened with the housing market. Right now supply is much higher than demand, but it is not getting to market.

[dava]

but the fact the market is speculating on billions of barrels of oil a year, when only millions are pumped

Well, average production last year was 82 million barrels a day.
I think you got some figures wrong.

[Kaplanr]

I'm sure this has a lot to do with the US printing paper money, they are simply creating a vicious circle, the devalued dollar buys less so they simply print more to make up the shortfall, and it goes on and on.

Does anyone have any real evidence that the US is printing paper money at an excessive rate? Here's a link to the Federal Reserve table that covers the US money supply (as of June 5, 2008) M1 and M2 with columns for both seasonally adjusted and not adjusted. The table begins in Jan, 1959. I'll include the last year's data below too.
http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt

---SEASONALLY ADJUSTED------- ---NOT SEASONALLY ADJUSTED----
------M1------- -----M2----- -------M1------- -----M2-----
CURRENCY, M1 + CURRENCY, M1 +
TRAVELER'S CHKS, RETAIL TRAVELER'S CHKS, RETAIL
DEMAND DEPOSITS MMMFS, DEMAND DEPOSITS MMMFS,
AND OTHER SAVINGS, & AND OTHER SAVINGS, &
CHECKABLE SMALL TIME CHECKABLE SMALL TIME
DEPOSITS DEPOSITS DEPOSITS DEPOSITS
--------------- ------------ ---------------- ------------
2007-Jan. 1372.2 7081.8 1368.4 7064.9
Feb. 1367.1 7109.0 1346.9 7075.5
Mar. 1369.3 7159.4 1378.2 7181.8
Apr. 1377.2 7206.8 1391.6 7266.5
May 1374.8 7227.0 1383.6 7206.3
June 1365.4 7243.6 1367.9 7248.6
July 1368.0 7267.5 1365.2 7251.5
Aug. 1369.5 7319.2 1368.6 7309.9
Sep. 1366.1 7346.5 1350.8 7335.1
Oct. 1369.2 7369.7 1361.3 7345.6
Nov. 1365.7 7398.0 1361.8 7399.5
Dec. 1366.3 7428.0 1386.0 7466.1
2008-Jan. 1367.0 7477.4 1364.1 7463.3
Feb. 1370.3 7581.9 1349.1 7549.7
Mar. 1372.0 7661.6 1381.4 7692.6
Apr. 1367.7 7676.7 1383.7 7738.0

[Flagg]

Does anyone have any real evidence that the US is printing paper money at an excessive rate? Here's a link to the Federal Reserve table that covers the US money supply (as of June 5, 2008) M1 and M2 with columns for both seasonally adjusted and not adjusted. The table begins in Jan, 1959. I'll include the last year's data below too.
http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt

---SEASONALLY ADJUSTED------- ---NOT SEASONALLY ADJUSTED----
------M1------- -----M2----- -------M1------- -----M2-----
CURRENCY, M1 + CURRENCY, M1 +
TRAVELER'S CHKS, RETAIL TRAVELER'S CHKS, RETAIL
DEMAND DEPOSITS MMMFS, DEMAND DEPOSITS MMMFS,
AND OTHER SAVINGS, & AND OTHER SAVINGS, &
CHECKABLE SMALL TIME CHECKABLE SMALL TIME
DEPOSITS DEPOSITS DEPOSITS DEPOSITS
--------------- ------------ ---------------- ------------
2007-Jan. 1372.2 7081.8 1368.4 7064.9
Feb. 1367.1 7109.0 1346.9 7075.5
Mar. 1369.3 7159.4 1378.2 7181.8
Apr. 1377.2 7206.8 1391.6 7266.5
May 1374.8 7227.0 1383.6 7206.3
June 1365.4 7243.6 1367.9 7248.6
July 1368.0 7267.5 1365.2 7251.5
Aug. 1369.5 7319.2 1368.6 7309.9
Sep. 1366.1 7346.5 1350.8 7335.1
Oct. 1369.2 7369.7 1361.3 7345.6
Nov. 1365.7 7398.0 1361.8 7399.5
Dec. 1366.3 7428.0 1386.0 7466.1
2008-Jan. 1367.0 7477.4 1364.1 7463.3
Feb. 1370.3 7581.9 1349.1 7549.7
Mar. 1372.0 7661.6 1381.4 7692.6
Apr. 1367.7 7676.7 1383.7 7738.0

What happened to M3? Funny that........ :)

[Igor01]

The US Fed is destroying its balance sheets by throwing good money after the bad - namely loaning out US Treasury Notes in exchange for the worthless "securities" that banks and investment brokers had accumulated in their ever-increasing gluttonous pursuit of "profitability". The bailouts will continue and increase dramatically as bond insurers get further downgrades, the loans go bad, the credit default swap deals start blowing up all over the place triggering a chain reaction. All this means only one thing - the Fed must continue creating more and more monetary instruments and erode its balance sheets further to keep the financial system from a complete collapse. The current monetary inflation will very soon translate into price inflation (this is happening already), which will accelerate the Dollar's decline and the resulting price increases in all commodities, primarily grains, fertilizer natural gas and oil.

The Fed is between a rock and a hard place - increase the discount rate and effectively pull the plug on the already crippled financial system or decrease the rates and administer the coup-de-gras to the agonizing US Dollar. The next two years will bring enourmous changes to the global financial system, wealth distribution and balance of power. Come 2010, the $130bbl oil will be remembered with fondness and nostalgy.

[Jesse Kantstopolis]

The Federal Reserve is printing way too much money and the markets are figuring it out. People are putting their money in tangible things that cannot be devalued, like gold and oil among many others. If the Fed wasn't printing so much money this would not be happening. Blaming the people that merely wish to protect their assets from the Fed's printing press is just plain ignorant.

Look at this graph to understand how much money the Fed is creating out of thin air.


Total Borrowings of Depository Institutions from the Federal Reserve (http://research.stlouisfed.org/fred2/series/borrow)


Just like Igor said, we are only in the beginning, the first inning of a 9 inning baseball game if you will. Things will get much much worse. If the Fed takes real action to curtail inflation the economy will blow up instantly and the democrats could win the presidency running a teddy bear. Enjoy life now as it is very good compared to whats in store for us in the near future. This is not a bubble, it is the beginning of a Crack Up Boom as explained by Ludwig Von Mises.


"'This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.'
"But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against 'real' goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

"It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last."


Take heed, the Austrian economists have been proven correct time and time again.

[shony2525]

Speculators bet both long and short. Without them there wouldn't be a market to share risk. The rise in commodity prices are due to supply and demand factors. It's not as sexy as other junk theories, but that is what is causing the price increases.

[Kaplanr]

What happened to M3? Funny that........ :)

Whether it's conspiratorial or not I don't know, but they stopped using it as a measure in 2006. If the graph that Jesse links to is accurate, then yeah there's a currency bloat going on; but it isn't showing up using the conventional measures (M1 and M2) of currency and credit in circulation.

[Jesse Kantstopolis]

M2 Money Stock
http://research.stlouisfed.org/fred2/series/M2

Currency Component of M1 Plus Demand Deposits
http://research.stlouisfed.org/fred2/series/CURRDD?cid=25 (http://research.stlouisfed.org/fred2/series/CURRDD?cid=25)

Non Borrowed Reserves of Depository Institutions
http://research.stlouisfed.org/fred2/series/BOGNONBR

[Kaplanr]

Any of that Bear Stearns?

[Igor01]

Lehman Bros is said to be the next one "rescued" by JPM (with Fed's guaranteeing Lehman's "securities" no doubt). I wonder what will real M3 look like by the end of the year.

ECB is raising rates, if Ben doesn't raise to substantiate his jawboning, the whole "Fed's now hawkish" farce will fall apart like a house of cards that it is. Things will get a lot clearer (and scarier) by December-January.