One last note of interest from the EIA site: The majority of oil the USA imports comes from non-OPEC countries, and has since 1994. However, in the future the situation will switch again - and for the entire oil-importing world, not just the USA. This means we'll be competing with the rest of the world for OPEC's oil! Keep those things in mind the next time you hear a Republicrat get on their soapbox and rail against OPEC or crow about having passed a bill to sue them.
Weak Dollar
The Federal Reserve has lowered interest rates and dumped tens of billions of dollars into the economy as a result of the sub-prime crisis. The Federal government continues to fund endless wars that mean budget deficits year after year. Have these things devalued the dollar enough to cause these kind of price surges? According to Ed Wallace at BusinessWeek, "The dollar has depreciated 30% against the world's currencies since 2002, while the price of oil has gone up 500%." Is this correct? I'm not sure where the 30% comes from - it's a "fuzzy" number to calculate - however in terms of buying power, it's fairly accurate. The price of oil is easier to verify - it was $25.03 per barrel in May 2002, and hit $135 per barrel this week, for a 539% increase. If supply, demand, and inflation were the only market factors involved, we would only be paying around $32.54 per barrel!
Speculation
Telegraph.co.uk reported on May 24:
"Lehman [Bros] latest report - Is it a Bubble? - says commodity index funds have exploded from $70bn (£36bn) to $235bn since early 2006. This includes $90bn of fresh money. Energy takes the lion's share. Every $100m flow of investment money into oil lifts crude prices by 1.6pc, it said. "We see many of the ingredients for a classic asset bubble," said Edward Morse, Lehman's oil expert.
This week has seen a dramatic surge in oil contracts dated as far forward as 2016. Futures have moved higher than the spot price, a rare event known as "contango". This can cut both ways: either as a sign of an impending supply crunch years hence; or that the futures market has become unhinged from reality."
On May 20, the Senate Committee on Homeland Security & Governmental Affairs held a hearing to ask "Are Institutional Investors contributing to food and energy price inflation?" Michael Masters, managing member and portfolio manager of Masters Capital Management, says we're experiencing a "a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors. Specifically, these are Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and other Institutional Investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant."
Other points he made include:
Next Page 1 | 2 | 3 | 4 | 5 | 6
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
