Oil Prices: Speculation or supply and demand?

[Dinner]

Am I the only one who thinks both sides are playing political games rather then working for real comprehensive solutions? I have the feeling that both of America's political parties are not telling the whole truth when it comes to oil prices. Rather they're both concentrating on just the part which makes the other sides campaign donors look bad instead of dealing comprehensively with the issue of energy.

Democrats like to claim that speculators are driving up the price of oil futures because of a change in laws Republicans passed in 2001 which allowed anyone to bet on the future price of oil. Prior to that only people or companies which actually were going to physically take possession of the oil could take part in the oil futures market; this resulted in a 1200% increase in demand for oil futures.

Republicans like to point out the basic supply and demand (I.E. to much demand and not enough supply) is what is driving up prices. They want more off shore drilling to increase the supply.

Both make excellent points and the reality is we need to do both as well as drastically cut demand by raising CAFE standards, building mass transit, and diversifying our electricity plants away from fossil fuels. None of them seem to want to take a holistic approach though.

What's your take?

BTW NPR has a good article on the Congressional energy debate: http://www.npr.org/templates/story/s...oryId=92793924

[Zkribbler]

I would guesstimate the price increases are due 80% to supply and demand and 20% to speculation.

But my guesstimate and $10 will get you in to see Dark Knight.

[Victor Galis]

I don't believe speculation has much of an impact given that the speculators aren't in any way adding to the real demand for oil. If the speculators were hoarding real oil in some way, then I might agree.

[Maniac]

supply and demand

[Zkribbler]

Airlines: Curb oil speculation
In open letter, 12 U.S. airlines call on Congress to curb excessive speculation that they say drives up oil and fuel prices, slamming the airline industry.


NEW YORK (CNNMoney.com) -- Hundreds of grounded planes. Thousands of lost jobs. Nearly two dozen price hikes. Record oil prices have battered the airline industry, and Wednesday the airlines called on Congress to act.

In an open letter to all airline customers, CEOs from 12 of the nation's airlines said lawmakers must curb excessive speculation to scale back record fuel costs.

"Normal market forces are being dangerously amplified by poorly regulated market speculation," the letter said. "The nation needs to pull together to reform the oil markets and solve this growing problem."

The airline industry said that Congress' previously established regulations to control excessive market speculation have largely been weakened or removed in the past two decades.

"We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight," the letter said. "Together, these reforms will help cool the overheated oil market and permit the economy to prosper."

A dozen or so bills have been introduced in the House and Senate on the subject of oil speculators. Democratic leaders in the House have promised to address the issue by tackling "excessive" speculation, but so far they have little to show for it. Policy analysts believe a bill is coming, but it may be September before a law can get passed through both chambers.

Meanwhile, airlines say record fuel prices are burdening their business and customers alike. Analysts expect the airlines will cut capacity by 9% in 2008 while continuing to hike fees and cut staff.

"For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities," the letter said.

Plea for support
American Airlines hopes its customers will help to urge Congress to sign a meaningful bill on speculation in futures markets.

"We are urging our customers and employees to ask Congress to act quickly to curb speculation in the commodities markets," said American Airlines in a statement. "Some experts estimate that this speculation adds $20 to $60 to the price of a barrel of oil - and it is consumers and companies like American Airlines, who actually use the oil for a productive purpose, who pick up the tab."

Even Southwest Airlines signed the letter. Though most airlines weren't as lucky, Southwest hedged 70% of its fuel costs at $51 a barrel. As a result of its smart bets in futures markets, the discount airline is paying only about $2 a gallon for its jet fuel.

"We mainly signed the letter as a show of support to the industry and to raise awareness for our customers," said a Southwest spokesman. "But even with the hedge, we're 30% vulnerable to current market prices."

The CEOs of AirTran Airways Inc. (AAI), American Airlines' parent company AMR (AMR, Fortune 500), Delta Air Lines Inc. (DAL, Fortune 500), JetBlue Airways Corp. (JBLU), Northwest Airlines Inc. (NWA, Fortune 500), United Airlines Inc. (UAUA, Fortune 500), Alaska Airlines Inc., Continental Airlines Inc. (CAL, Fortune 500), Hawaiian Airlines Inc., Midwest Airlines, Southwest Airlines Co. (LUV, Fortune 500) and US Airways Group Inc. (LCC, Fortune 500) all signed the letter.

[Dinner]

My comprehensive solution?

1 - Get rid of speculators by returning to the pre-2001 anti-speculation law.

2 - Increase supply by aggressively drilling all off shore areas.

3 - Decrease demand by raising CAFE standards to 38 mpg over the next 10 years.

4 - Increase the gas tax by $2 per gallon to raise money and then funnel that money into building mass transit especially light rail. This will also help lower demand.

5 - Phase out all coal, oil, and natural gas power plants over 10 years by continually raising taxes on them until they cannot remain open. Aggressively build massive numbers of new nuclear power and wind power plants. If there is a river left to dam then let's build a dam and increase our hydro capacity. Expedite all of this by cutting the red tape and getting rid of the ability of NIMBYs and environmentalists to slow projects down with frivolous law suits. Call it a national emergency and just get the plants built ASAP.

6 - Huge increases to AMTRAK to increase the number of routes and the frequency of trains, build new high speed trains connecting major cities in the US.

[Vanguard]

It isn't caused by supply and demand of oil.

It is cause by supply and demand of money.

The huge amount of debt in the world today, brought about by very high leverage of overvalued assets, is basically the same thing as printing money. It has resulted in the phenomenon that Austrian economists call "Flight to the Real", where everybody tries to get out cash and get into real assets---- any real assets.

It doesn't matter how much those assets cost. It is still better than staying in cash.

[Dinner]

I guess my point was neither side was being honest. Democrats say they want to limit speculation but refuse to allow more off shore drilling while Republicans demand more off shore drilling but refuse to even consider doing anything about speculation.

We'll need both and even then that is only the starting point.

[Maniac]

Originally posted by Oerdin
new nuclear power

Unfortunately this only works if not everyone does it. Apparently if all the world used nuclear power for their electricity needs, all uranium reserves would be exhausted in two years.

[BlackCat]

Originally posted by Maniac


Unfortunately this only works if not everyone does it. Apparently if all the world used nuclear power for their electricity needs, all uranium reserves would be exhausted in two years.

Nope, that is not the case. At least 200 years just for starters is more correct. Using thorium adds probably yet another 10.000 years.

[Straybow]

1 - Get rid of speculators by returning to the pre-2001 anti-speculation law.

Probably a good idea, just for the sake of stability.

2 - Increase supply by aggressively drilling all off shore areas.

It isn't just oil supply, it is the entire petrochemical infrastructure. In many places the refining capacity can't keep up with demand for gasoline.

3 - Decrease demand by raising CAFE standards to 38 mpg over the next 10 years.

Yeah, that will go over like a lead balloon.

4 - Increase the gas tax by $2 per gallon to raise money and then funnel that money into building mass transit especially light rail. This will also help lower demand.

Most of our cities aren't compact enough to benefit from light rail in any economically meaningful sense. In the SF Bay area it would take at least $1 billion per 1% of car traffic displaced. To get above 50% you'd need to provide a dense enough network that mass transit wouldn't greatly increase the travel time required. That gets even more costly and has a fairly steep diminishing return. In short, we don't use enough oil to fund an infrastructure project on that scale.

5 - Phase out all coal, oil, and natural gas power plants over 10 years by continually raising taxes on them until they cannot remain open. Aggressively build massive numbers of new nuclear power and wind power plants. If there is a river left to dam then let's build a dam and increase our hydro capacity. Expedite all of this by cutting the red tape and getting rid of the ability of NIMBYs and environmentalists to slow projects down with frivolous law suits. Call it a national emergency and just get the plants built ASAP.

AHAHAHAHAHAAA! That, and never go in against a Sicilian when death is on the line!

6 - Huge increases to AMTRAK to increase the number of routes and the frequency of trains, build new high speed trains connecting major cities in the US.

Again, $billions for each % of long distance car travel displaced between each pair of major cities, with a fairly low and inflexible cap based on travelers that don't go between major cities.

[Maniac]

Originally posted by BlackCat
Nope, that is not the case. At least 200 years just for starters is more correct. Using thorium adds probably yet another 10.000 years.

Are you saying the environmentalists might have been lying to me?

[BlackCat]

Originally posted by Maniac


Are you saying the environmentalists might have been lying to me?

Oups, sorry Didn't know that you had your knowledge from such prominent and reliable sources - I thought it was the usual lies from the oil & coal mafia.

[Victor Galis]

Why am I surrounded by communists? Even the Austrian economists' explanation seems rational in comparison .

We'll need both and even then that is only the starting point.

Or how about neither. They're all terrible ideas.

Honestly, I think doing nothing and let people feel the pain is a much better solution for now. Maybe then we could reverse the flight to the suburbs and get most people living close enough together for mass transit to work in more cities. You're never going to impose a real top-down solution unless people realize how much the alternatives suck.

Nope, that is not the case. At least 200 years just for starters is more correct. Using thorium adds probably yet another 10.000 years.

Think the truth is somewhere in the middle. I'd heard Uranium prices went up something like 17x since the early 90s .

[Kuciwalker]

Speculators are just great scapegoats.