Monday, August 21, 2006

Fear drives oil prices high through speculation

This article posits that uncertainty is driving the price of oil at 25% higher than appropriate. We've seen this before in the 80s with uncertainty caused by Saudi Arabia nationalizing its oil fields. Unfortunately with uncertainty comes speculation, and the speculation is causing higher prices for consumers at the pump. The "supply and demand" profits that Exxon insinuates is the consumers' fault is actually the supply and demand of oil futures. But unlike an overvalued bubble of speculation that can occur in the stock market, the futures contracts drive up the real price of this commodity and consumers foot the bill for massive profits at Exxon. And oil companies have done very little with their windfall profits. They've neglected their pipelines and delayed building new refineries to reduce our dangerous over-reliance on gulf coast refineries.

Maybe we need a market where cynically manipulative investors cannot profit at the expense of the unknowing public. But first, let's get the public educated and see if they feel the same way.

No comments: