I write two point of views, whether the soaring Crude prices is driven by speculation or by pure fundamentals of reaching a peak in oil
1. SPECULATION
A pure manipulation, thats all, that too fueled by brokers and banks from money borrowed from Fed. Its a lengthy article, but read on, it's good.
http://www.marketwatch.com/news/story/wall-street-blame-runaway-energ...
Following is the abstract:
1. The way traders push up prices is surprisingly simple. They buy in European futures markets, which don't have the limits that U.S. markets do. That drives up U.S. prices where they may already have positions.
2. The Goldman problem. During a three-year span ending in 2006, between $100 billion and $120 billion in new speculative money entered the energy markets, according to a congressional report. Investment in commodity index funds surged more than 500% to $80 billion during the
same period.
3. Don't forget the brokers and banks. Commercial and investment banks have launched huge energy trading desks. Among them are Bank of America Corp., Morgan Stanley, and Goldman Sachs Group Inc. These desks aren't much different from their hedge fund brethren. A study by
the International Research Center for Energy and Economic Development concluded "the proprietary trading desks of these and other large investment banks are actually hedge funds in drag, just as Enron was.
4. Last week, J.P. Morgan Chase & Co.'s investment banking co-head, Bill Winters, said that one of the unexpected benefits of the acquisition of Bear Stearns Cos. (BSC:The Bear Stearns Companies Inc was that its energy trading desk was "surprisingly strong."
5. The hubris and insensitivity of energy trading is best personified by Goldman Sachs. A Goldman commodities analyst famously predicted in March 2005 that oil would reach $100 a barrel. At the time, a barrel was trading about $55. The prediction led to a lot of ridicule, but it
also drove up prices in the short term, and ultimately came true. It also led to speculation that Goldman was trying to goose the market because it had a huge position in oil derivatives.
6. Now, Arjun Murti, the same analyst who made the earlier prediction at GS is back, promising $200 oil this year. Murti is again talking about demand, but again, world consumption doesn't suggest the price should double. Saudis confirmed today that demand has not increased hence no need to bump up production when Bush asked for it.
7. Unswayed by Goldman's treatise, Congress, the Federal Trade Commission and the Commodity Futures Trading Commission are all looking to rein in the trading. A House panel is investigating speculation and will hold hearings in May and June. A Senate bill sponsored by Michigan Sen. Carl Levin seeks to put limits on U.S. trades in overseas markets.
ongoing.
2. Fundamental
There's a very interesting article that clearly explains the fundamental point of view of peak oil so there's no need for me to repeat. I highly recommend this article. Here's an excerpt:
"Oil will not just "run out" because all oil production follows a bell curve. This is true whether we're talking about an individual field, a country, or on the planet as a whole. Oil is increasingly plentiful on the upslope of the bell curve, increasingly scarce and expensive on the down slope. The peak of the curve coincides with the point at which the endowment of oil has been 50 percent depleted. Once the peak is passed, oil production begins to go down while cost begins to go up."
-Taken from http://www.lifeaftertheoilcrash.net/
