Dell thinks that mass speculation will end when production capacity meets demand. This is a backwards analysis. Production capacity will never meet demand so long as mass speculation makes unproductivity immensely profitable. According to the International Monetary fund (IMF), oil companies have not invested in additional production capacity – thus intentionally maintaining record oil company profits. [4] Oil companies are negatively motivated to increase capacity in the speculatively-manipulated market because they reap tremendous profits by sitting on their thumbs.
Gouging by playing “Fear Factor”
Oil companies normally buy some spot oil futures against excess production by other oil companies to make sure they will have enough crude. In this legitimate market, there are only so many dollars chasing so many excess barrels of future oil.
Pension and other large speculative bank-owned investors discovered they could manipulate the market out of sheer size. By making huge purchases of futures, they could accelerate fears, take oil offline, drive the price up even more – and make handsome profits in just a few weeks or months. The spot market is now distorted – too many dollars chasing around the same amount spot oil. Minor fluctuations in gas prices became wide swings. The word “hurricane” is all it takes to provide cover for raiders to buy in. Over time, the constant pressure to maintain futures profits has caused steep, consistent rises in baseline crude and refined prices over the past five years.
Analyzing the roughly 566% increase of crude oil prices since 1995, [5] accompanied by a parallel rise in refined-gasoline prices, the International Monetary Fund (IMF) admits that fear is the major factor driving oil price gouging:
“Naturally, given the tightness in the oil market and uncertainties about demand and supply, factors such as geopolitical developments, fears of potential supply disruptions, and speculation have also all played a part in price movements, but largely through their impact on expectations regarding future fundamentals.” [6]
After identifying fear as the major factor, the IMF absolved its institutional friends manipulating those fears, suggesting the effect of entry into the market by Hedge and pension funds merely adds “diversity” to the market that can “be a source of liquidity and price discovery”. [7] Read between the lines, America: the IMF just admitted that banks and pension funds are “discovering” new oil prices by flooding a brittle market with paper purchases, and laughing all the way back to the bank.
Is There Really an Oil Shortage?
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