It's the energy, stupid!

It’s the energy, stupid
by Byron W. King

http://www.energybulletin.net/node/45815

Speculation:

With the price of oil doubling in the past year, there are more fingers being pointed than solutions being offered.

Unfortunately, one of the biggest culprits taking much of the blame has been the group of people called "oil speculators." Congress has decided to make them the scapegoat for our energy concerns. Unfortunately, many members of the public are beginning to lap it up.

Let's get something straight from the start. Speculators are speculating because there is something about which to speculate. (Let me thank my sixth-grade English instructor for teaching me how to compose that sentence.)

SNIP...

As for the so-called oil speculators, they are just defending the value of their money. They are looking forward a few years. What do they see? All of the current energy development projects will just barely replace the oil that will NOT be coming from declining oil fields. So peering ahead, there’s no net increase in future oil output. We’re looking at a plateau in output, if not the backside of the Peak Oil curve.

But we are looking at growing energy demand, as well as demand for other resources. So investors have placed hundreds of billions of dollars into energy and other commodity funds during the past two years. They are both hedging against dollar inflation and anticipating future supply shortfalls.

READ THE REST AT THE ABOVE LINK

---------------------------------------------------------------------------

Although it's a bit overly simplified, I think that King hit the nail on the head with the role of speculators in the current energy "situation." They are not driving it, they are REACTING to it in the most rational way for those who make their living speculating the future prices of commodities.

Thoughts? Comments? Obscenity-laced tirades?

Hmmm...

.......recognize the definition of a "commodity" as something used so frequently it cannot easily be replaced by anything else.

Driving up the prices of commodities by speculation is about as low as someone can get.

People die from starvation due to grain prices skyrocketing, and the entire world needlessly suffers being on the verge of an economic collapse just so these traders can make some quick money.

on your side of this discussion. Is there some point where really rich people get some criticism for their greed?

It would be in the best interests of many oil importing countries to have a good future oil supply locked up, even at current prices. Many of these countries have long held huge and poorly performing dollar reserves. If I were a forward-looking Chinese official, for instance, I would say that the future usefulness of a ten or twenty year oil supply contract might far exceed the future usefulness of much of the Chinese dollar holdings.

Is it possible that dollar reserves are being dumped and applied to oil futures, this running oil up and the dollar down?

So when someone pulls a pump and dump on a massive scale in the energy sector, it's OK?

Define "pump and dump".

Describe what specific circumstances exist to support your claim that this is a pump and dump.

Thank you.

Then you can form your own opinion of what specific circumstances exists to support the idea.

There are many philosophical differences I have with Byron King as well. However, I find his peak oil commentary to be insightful and very historically-based. He regularly refers to the boom and bust of oil in Western PA (another reason I like him -- we're both from the same area) at the start of the American petroleum age.

King's point is not to make a value judgment, but rather to make rational observations and try to draw conclusions based upon them. In the global economy, there are people who make a living from speculating on the future price of just about everything we use. These are commonly referred to as "commodities". When these people believe that a supply of a certain commodity is in a temporary short supply but will go up over the long term. King pointed out that although the world suddenly suffered a loss of 5% of global oil production after the Ayatollah took over in Iran, people in the oil industry knew that there were future projects (North Sea, Alaska) coming on line that took up slack by the mid 1980s and the price came down again.

The difference now, King says, is that oil futures traders recognize that there are no large projects that are due to come on line in a few years. Factor in the decline of existing megafields (Cantarell, Alaska, North Sea, Ghawar?) combined with the massive upsurge in demand (China, India), and there's no relief in sight. Therefore, if you are a commodities trader and have a financial stake in whether the price goes up or comes down, which would you vote on? This, King proposes, is the role of speculation in this process. Speculators are reacting to geological predictions and current business situations throughout the oil industry. Taking those into consideration, these traders are wagering that the price of oil will increase in the future.

I understand and am sympathetic to the value judgments against such practices. However, such practices exist in our society. Few are those who can honestly say they do not compromise their values in some way while making a living. I'm just trying to look at the situation -- and King's assessment of it -- as objectively as possible before making a value judgment and forming my argument for, against, or sideways from it.