Oil prices are zooming again

Oil is over $91 a barrel, the highest ever for this time of year. The Wall Street Journal can’t understand it. To their eyes there is no good reason why oil should be this expensive: “Unlike price spikes in 2005 and 2006, the chief culprit isn’t a sudden disruption in global crude supplies. The world is now awash in crude: Iraq is expected to substantially raise exports next year, and Saudi Arabia has a secure cushion of production it can turn on at any time.”

For the record, there weren’t price spikes in 05 and 06 – there was a simple sustained rise that culminated in 2008, when oil went to $147 a barrel.

If the world is “awash” in crude (what a wonderfully horrible image, but one that brings delight to the “growth” crowd, I’m sure) what is causing this price increase?

Is a weak dollar to blame? Not now, as the dollar is stronger than it has been in months.

Are there speculators? Yes. But what is a stock market but speculation that if you invest in something it will make you money. Speculators are simply investing in the belief that price will go up as demand increases relative to supply. This is what the Wall Street Journal thinks is happening: “A massive flood of investment dollars into commodities was a major cause of the 2008 oil price spike and appears to be playing a role today as well.”

All that’s really going on here is nothing more than what we saw in 2008. Demand is outstripping supply, and thus is being rationed by price.

Despite loving the “free market” and “capitalism” and “market forces” in every single other aspect of their lives, no serious business person – certainly not mainstream outlets like the WSJ – can even hint that high prices might be the result of supply issues.

Well, how do we fix it? As the Wall Street Journal suggests, we could ask oil producing countries to pump more, which would have the effect of bringing the price down. But we already tried that back in 2008, remember?

Bush asked – pleaded- with OPEC to pump more. He went to Saudi Arabia personally to ask them to pump more. Their response: the time is not right, “supply and demand are in balance today.”Yeah, oil was selling for $147 a barrel and they didn’t think the time was right to increase production? Only two things could have caused that reaction: insatiable greed, or the fact that they didn’t have any more to pump.

Either way, they didn’t pump appreciably any more oil, despite the request of the biggest friend they ever had asking them to. A Republican OIL MAN for God’s sake. No dice. So if Obama asks them in the Spring of 2011 to pump more to lower prices, do you think he will get any farther? (Maybe he could, after all he is an African. Bet the birthers never saw that benefit!)

At the time they claimed that they were sensitive to the state of their customer’s economies. Yet that has proved to be a laugher. Their customer’s economies imploded because of high oil prices. And yet here we are again with oil over $90. The real fact is that we will buy their dope no matter what the price. We can’t live without it. They know that. They have us over a barrel.

If oil producers didn’t pump more when oil was $147 a barrel, why would they ever do so until it gets at least that high again? Then, we’ll see which happens first: another economic collapse or more production. In the meantime, we’re going to be paying more for food, transportation, and just about everything else. While 10% unemployment keeps our wages frozen.

Welcome to the peak oil world. 

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2 Comments

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2 responses to “Oil prices are zooming again

  1. Dan

    Steve,
    I don’t doubt the Peak Oil stuff, but there may be another culprit for this. If you haven’t read it, Matt Taibbi’s new book Griftopia is excellent. There is a chapter in there about how the big banks like Goldman have managed to get around the New Deal regulations on commodities markets and have been artificially inflating the price of oil by funneling tons of capital from institutional investors into these markets. Judging from your blog, I think you would really like the book. His articles on Rolling Stone magazine are great as well.

    -Dan

    • Thanks Dan – I agree that speculation is part of it, but I do think that in the end, the issue is with supply. There just isnt excess capacity to pump that would bring the price down.
      I really like Tabbi’s work- he’s calling it like it is.

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