Wednesday, March 9, 2011

Are Oil Prices Being Goosed?

The price of oil is rising. People are fearful about the hit to their pocketbooks because of the turmoil in the Middle East and especially Libya, where the Colonel seems intent on Custer’s Last Stand.

When I hear the words, “Turmoil in the Middle East”, I think of Casablanca and the words, “Round up the usual suspects.” No, I’m kidding. I think of Claude Rains saying, “I’m shocked! I’m shocked to find out there’s gambling going on here,” while he collects his winnings.

In today’s WSJ, in the column Ahead of the Tape, the writer wrings his hands over the impact of the rising price of crude on the nascent economic recovery. Gasoline prices are rising rapidly. People need their cars to get to work and often for work itself (truck drivers, taxi drivers, et al) so they’ll be squeezed further. More money for gas means less money for shelter, food and the kids.

One exacerbating factor is oil speculation. That is when there are barrels lying idle while traders gamble on the shrinkage supply. If there is x amount of oil available minus y amount stockpiled, then the supply left to bet on is x-y, not x.

Back in 2008, there was also turmoil in the Middle East and Libya. Oil speculation was considered to be a major factor. I wrote a diary on this phenomenon.

Check it out for a dose of historical context.

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