Why did Oil Prices Soar? Supply and Demand?

[Nickdfresh]

Did Speculation Fuel Oil Price Swings?
60 Minutes: Speculation Affected Oil Price Swings More Than Supply And Demand

Jan. 11, 2009

(CBS) About the only economic break most Americans have gotten in the last six months has been the drastic drop in the price of oil, which has fallen even more precipitously than it rose. In a year's time, a commodity that was theoretically priced according to supply and demand doubled from $69 a barrel to nearly $150, and then, in a period of just three months, crashed along with the stock market.

So what happened? It's a complicated question, and there are lots of theories. But as correspondent Steve Kroft reports, many people believe it was a speculative bubble, not unlike the one that caused the housing crisis, and that it had more to do with traders and speculators on Wall Street than with oil company executives or sheiks in Saudi Arabia.
...

The rest of the script here.

60 Minutes Video from Jan. 12th:

http://www.cbsnews.com/video/watch/?id=4713382n

 

[GROUCHO MARX]

I saw that. If the prez had made a few announcements releasing the SPR, it would have shaken the speculators out of the market.

 

[Titan]

Speculators were treating oil futures as a sort of de-facto currency. The speculation raised prices more than the demand. It reminds me somewhat of the Holland Flower Bulbs of many decades ago...except oil is actually of industrial value.
SW airlines even fell for the swing, and buying futures to lock in delivery prices bit them in the pants, as the bubble burst, and now they paid too much for the fuel.

 

[swalve]

Also relevant is that demand and price aren't linear. In a market like oil, where it's not easy to just bring more oil into production, small increases in demand can have huge increases in price.

 

[TurboLuver]

It amazes me that even with concrete proof, the supply and demand monkeys still want to believe that the oil price spike was a simple supply and demand event when during the event supply rose and worldwide demand decreased...

 

[Smoky14]

It's Bush's fault....no wait he's in Texas...

 

[GROUCHO MARX]

It was a supply and demand issue, on trading floors. The oil companies could not do anything about that.

Like baseball cards or beanie babies, only that you must have delivery guaranteed by a certain date for production.

 

[NHHEMI]

Originally Posted By: TurboLuver
It amazes me that even with concrete proof, the supply and demand monkeys still want to believe that the oil price spike was a simple supply and demand event when during the event supply rose and worldwide demand decreased...

X2!!!!!!! It was GREED on Wall Street that mainly "fueled" it. S&D, while a small part of it, was a smoke screen used to try and hide the speculation and manipulation that was truly behind it.

Don't forget that in addition to the greedy speculators there was intentional manipulation by the gas companies and refining companies as well. A lot of "unplanned maintenance" shut downs, or even right out in the open reduction in refining output designed to raise prices by decreasing "perceived" supply, during those few times when prices started to fall to whip those speculators back into a frenzy.

Billions and Billions were made by a few off the suffering of this country. It was NOT all S&D. Not even close.

 

[eljefino]

It would be great to have an automatic "circuit breaker" if prices jump... like a 60 day 55 MPH national speed limit, ban on idling, etc... just to show speculators we won't stand for their behavior.

The pickens plan etc are still moving forward which IMO is holding the speculators at bay, as well as the recession. You can't disprove a negative (or prove it positively) but it still seems prudent to seek alternatives, if only to stick it to wall street. (they deserve it!)

 

[Curious Kid]

I wonder about China's construction boom and other efforts put forth in preparation for hosting the '08 olympics, as not only has the cost of fuel gone down, so has the value of recyclable goods such as paper/cardboard, metal, etc. ???

Take care.

 

[H2GURU]

There were many reasons for this rapid price increase.
1.Investors had run the gammit of things to in vest in and natural resources were the last in a long list of potential profit areas.
2.Speculation, particularly by hedge funds, caused quite a bit of it.
3. Oil fields that were knocked out of production by Katrina certainly had something to do with it.
4.Stockpiling by China as well as the U.S. military's played a part.
5.America's economic boom was still red-hot.

The world cannot break the 84-85 MM barrels/day threshold so you can doubt S&D if you'd like, but do so at your own risk? Just as prices went too high then, I see them as too low now and so has OPEC with their recent cuts. There is currently a MAJOR union vote taking place and its ramifications could take out 10-15% of current U.S. production. A mere 5% cut in "73-"74 brought this country to it's knees. Even in our down economy, fuel interuptions in sub-freezing weather can be disastrous.

http://www.bloomberg.com/apps/news?pid=20601103&sid=a_e_bB.zbWxA&refer=us

 

[H2GURU]

If oil is of interest to you, then check this blog that has deep but worthwhile content by people in the industry.

http://graphoilogy.blogspot.com/2008/01/quantitative-assessment-of-future-net.html