Wednesday, July 29, 2009

Surprise, surprise, surprise

Speculators caused 2008 oil price crisis (h/t naked capitalism). I recall last year some folks were trying to tell us that the oil prices (and by association gasoline, diesel, and heating oil prices) we were experiencing were not based on what they referred to as market fundamentals. In other words, given the available supply, and given the demand, there was no justification for $147 per barrel oil costs (depending on the analyst, it seemed the consensus was around $70-$100 as more reality-based). In other words, something was not quite adding up, and part of the problem was with the speculators looking for a new playground after their fun with the real estate market ended. The temptation for speculators to jack up the cost of oil is still quite present, as we've seen in recent weeks and months. Demand pretty much peaked last summer, and even with the major oil producers reducing their supplies, there's still more oil out on the market than there are buyers. As to whether any of this indicates that we've reached or passed the point at which oil producing capacity has peaked (i.e., what we mean with the term "peak oil") I'm pretty skeptical - I'm no optimist (i.e., the folks who think everything will be rosy through about 2030 or later), but I don't quite yet share the views of the pessimists who think we passed the peak last year or as early as 2005. We're way behind the curve on alternative energy research, and are quite vulnerable to oil price spikes that would actually be based upon fundamentals.

The human consequences of the oil bubble were profound, as the inflated prices led to a partial breakdown of the systems that distribute such goods as food, leading to food riots in parts of the world, shortages elsewhere (I've written about the ones I noticed in my neck of the woods), and for those of us in rural areas in the US, more impoverishment as travel costs began to eat up 10%-15% of household income (by travel costs, I'm thinking primarily in terms of commuting to and from work, the grocery store, etc.). Regulation of futures markets would appear to prevent a repeat performance of last year's energy cost spike, as would of course seriously funding and promoting research on alternative sources of energy.

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