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Why the oil price means bubble trouble
Larry Elliott, Guardian
There are plenty of explanations for what’s happening in the global oil markets. It’s caused by the economic boom in the world’s largest developing countries, particularly China and India. It’s caused by the unwillingness of the oil cartel Opec to pump more crude. It’s caused by the fact that the world has reached peak oil – the moment in our history where supplies of the black stuff start to dwindle.
All of these factors may have contributed to the upward trend in the oil price over the past six years, which has seen the cost of a barrel of crude rise from around $20 a barrel to $135 a barrel today. None of them really explain, however, why the price should have gone up by more than $5 in the past 24 hours and by a third in little more than a month. That sort of price action is the result of a speculative frenzy of the sort that was witnessed in the dotcom mania of the late 1990s. The oil market, to put it simply, is a massive bubble waiting to be popped.
(22 May 2008)
They’re wrong about China and oil
Anatole Kaletsky, The Australian
JUST as the credit crunch seemed to be passing, at least in the US, another and much more ominous financial crisis has broken out.
The escalation of oil prices, which this week reached a previously unthinkable $US130 a barrel (with predictions of $US150 and $US200 soon to come), threatens to do far more damage to the world economy than the credit crunch.
Instead of just causing a brief recession, the oil and commodity boom threatens a prolonged period of global “stagflation”, the lethal combination of high inflation and economic stagnation last seen in the world economy in the 1970s and early 1980s. This would be a disaster far more momentous than the repossession of a few million homes or collapse of a couple of banks.
Commodity inflation is far more lethal than a credit crunch for two reasons. …
… The present commodity and oil boom shows all the classic symptoms of a financial bubble, such as Japan in the 1980s, technology stocks in the 1990s and, most recently, housing and mortgages in the US. But surely, you will say, this commodity boom is different? Surely it is driven by profound and lasting changes in global supply and demand: China’s insatiable appetite for food and energy, geopolitical conflicts in the Middle East, the peaking of global oil reserves, droughts caused by global warming and so on. All these fundamental points are perfectly valid, but they tell us nothing about whether the oil price will soon jump to $200, stay at $130 or fall back to $60 next month.
To see that these “fundamentals” are all irrelevant, we have merely to ask which of them has changed in the past nine months. The answer is none.
(22 May 2008)
I can think of one fundamental that may have changed: the cultural assumption that “Oil is Forever.” -BA
The oil price will eventually return to earth, but collateral damage is likely to be serious
Jeremy Warner, UK Independent
Here are a few reasons for not feeling too depressed about the ever-rising oil price, and a few others for being very worried indeed. For anyone who cares about the environment, high prices are obviously a potential force for good as they oblige consumers to treat fossil fuels as a scarce resource and either use less of them or seek out alternatives.
If I can’t appeal to your altruism in thinking high oil prices a welcome development, then there is at least some comfort to be taken from the fact that the present elevated cost of oil is almost certainly not permanent. As the world economy slows, the best guess remains that oil and other commodity prices will follow the usual cyclical pattern of eventually falling back to more affordable levels.
(23 May 2008)
More on the real reason behind high oil prices, part II
F. William Engdahl, Financial Sense
As detailed in an earlier article, a conservative calculation is that at least 60% of today’s $128 per barrel price of crude oil comes from unregulated futures speculation by hedge funds, banks and financial groups using the London ICE Futures and New York NYMEX futures exchanges and uncontrolled inter-bank or Over-The-Counter trading to avoid scrutiny. US margin rules of the government’s Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex, by having to pay only 6% of the value of the contract. At today’s price of $128 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120. This extreme “leverage” of 16 to 1 helps drive prices to wildly unrealistic levels and offset bank losses in sub-prime and other disasters at the expense of the overall population.
The hoax of Peak Oil-namely the argument that the oil production has hit the point where more than half all reserves have been used and the world is on the downslope of oil at cheap price and abundant quantity-has enabled this costly fraud to continue since the invasion of Iraq in 2003 with the help of key banks, oil traders and big oil majors. Washington is trying to shift blame, as always, to Arab OPEC producers. The problem is not a lack of crude oil supply. In fact the world is in over-supply now. Yet the price climbs relentlessly higher. Why? The answer lies in what are clearly deliberate US government policies that permit the unbridled oil price manipulations.
(21 May 2008)
Contributor Brad Bonham writes:
William Engdahl continues to diverge from his Peak Oil roots and sounds the horn that oil prices are purely about speculation. He and Greg Palast are causing considerable intellectual noise for people trying to understand whether Peak Oil is a present reality.
UPDATE (May 23)
Another Engdahl piece in Asia Times: Oil price mocks fuel realities
BA: I no longer read Engdahl, since he latched onto abiotic oil. Increasingly he explains events in terms of conspiracies.
Contributor Steven Lesh writes:
You may not agree with Engdahl but you can not ignore him. He is probably in the same camp as Greg Palast – “There’s plenty of oil out there (at > $60 a barrel. But that doesn’t mean we should burn it.”) even though Engdahl still believes in abiotic oil to the best of my recollection.
