The lead story tonight on Fox 66 is that crude oil reached another record high this weekend. Answer this question for me: is the price of a 55-gallon drum of sweet crude oil really worth 50% more than it did just a few months ago? Or is it worth five times as much as it did five to six years ago? Call me naïve, but my intuitive common sense says, “uh, no.â€
I understand that the arcane alchemy that is the international commodity trading of oil is quite complex. But when I hear explanations on news reports that traders are “fearful†of tight supplies, or rumors of Middle East conflict which might affect production, as reasons of bidding the prices higher makes me wonder if there is way too much emotion and not enough fundamental justification for the high price.
According to the oil minister of Ecuador, “High prices are due to market speculation. Oil producers have no relation with that speculative process.” This sounds like we are in the middle of an oil price bubble that for all of our sakes, really needs to burst.
That’s why I’d like to know what it would take to talk down the price of oil. I mean really, what if these traders have really paid too much for oil? Shouldn’t they be thinking of selling? A selling panic might also be bad for the economy, so perhaps a soft landing is in order.
In any case, if these oil investors are so neurotic that they get spooked by every little bite of bad news, let’s give them some good news: we have NEVER run out of oil, there are decades worth of reserves, so what are they worried about? In fact, we know something that they need to understand: they paid way too much for those oil futures, and its time to sell, sell, sell!!!
Sorry if I sound too emotional.
November 5th, 2007 at 8:31 am
It might help a bit if the U.S. were to announce that it was confident of its current inventory and stop adding to the strategic reserve. That it is still stockpiling oil at these prices is insane anyway.
November 5th, 2007 at 9:39 am
Last week, crude oil inventories fell 3.9 million barrels. If the oil companies can’t buy enough at $90, the price sure isn’t going down.
The Energy Department’s Crude Oil Inventory report is released at 10:30 am each Wednesday. That’s a great indication of where the price is going.
November 5th, 2007 at 10:41 am
I think these fears of investors and OPEC are largely unfounded but are useful for keeping prices jacked up. Case in point, when these fears never materialize (and they almost never do) you never see a reverse reduction or discount in oil prices. They always return to “normal” with absolutely no adjustment. These people merely pocket the cash.
NPR had an interesting segment discussing the “sweet spot” in crude oil pricing for various countries. Saudi Arabia for example, cannot sell a barrel for less than $45 (I believe) since the nation’s spending behavior can’t continue below that price. It really is a convoluted scheme but greed seems to be the hallmark.