# Oil prices: what if it is caused by speculation?
**URL:** https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609
**Category:** Great Debates
**Created:** [June 3, 2008, 11:06am UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609 "2008-06-03T11:06:41Z")
**Posts on this page:** 20
**Page:** 8
### Author:  [@Precambrianmollusc](https://boards.straightdope.com/u/Precambrianmollusc)
#### Post date: [June 8, 2008, 2:06am UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/141 "2008-06-08T02:06:12Z")
[QUOTE=bordelond]
Now this raised my eyebrows. I can’t help thinking that the rise in gasoline prices has been more or less artificially spurred (as opposed to true and open market forces working “organically” across the globe) … and this kind of makes me think that I could be correct.
[/QUOTE]
Not sure how to do a quote in quote, but the comment about good data is a valid one. It is one of the IEAs monthly bitch topics in the monthly oil market report. OECD countries are generally very good at reporting consumption, imports exports and stock levels. The rest of the world, not so much and China is pretty much a disaster as far as consumptions, stock and refineray capacity data is concerned. The middle east is pretty sketchy on its true production capacity and the build in floating storage capacity in Iran as ever is a bit of a wild geuss. Internal consumotion and refining capacity in Russia away from the IOCs is also a dark art.
So with uncertainty in data comes risk, and risk always has a price tag attached.
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### Author:  [@Precambrianmollusc](https://boards.straightdope.com/u/Precambrianmollusc)
#### Post date: [June 8, 2008, 2:17am UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/142 "2008-06-08T02:17:38Z")
[QUOTE=gonzomax]
[Arab News | Worldwide News, Latest Breaking News & Updates](http://www.arabnews.com/?page=7§ion=0&article=107732&d=11&m=3&y=2008) It is dealers and speculators according to this arab newspaper. Supply is high ,demand is dropping.
This bubble too will burst with taxpayers having to save them again.
[/QUOTE]
Under what mechanism would the taxpayes save those who chose to dabble in the futures market.
In the dot com stock bubble burst I don´t recall the tax payers bailing out those who lost money when they were left holding worthless equity in worthless companies.
Sure for the housing market the taxpayers bailed out a bunch of banks, and frankly the goverment dudes who allowed the banks to take risks, ultimately with taxpayers money, need a hefty slap. Is there any mechanism you could cite whereby the taxpayers and government are required to prop up those investing and loosing their shirts in oil futures?
Now if there is then I would suggest that it would be one time that government intercession into a market would be prudent, mainly to ensure that those playing are adequately covered for the risks they are taking and are not over extending themsleves.
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### Author:  [@XT](https://boards.straightdope.com/u/XT)
#### Post date: [June 8, 2008, 6:22am UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/143 "2008-06-08T06:22:02Z")
[QUOTE=gonzomax]
Wrongo. The problem with Israel saying they saw no choice but to attack Iran had much to do with the price jump of yesterday.
[/QUOTE]
Seriously…do you know what ‘uncertainty in the market’ means? Put another way…is anyone denying that this wasn’t a factor? Do you comprehend that there are multiple factors that impact the price? And that there are multiple factors that impact and encompass the word ‘speculation’?
[QUOTE=gonzomax]
Note, nothing happened to the supply.
[/QUOTE]
I’m going to say this as gently as I can (because of the forum we are in)…the price of oil on Friday is for oil that will be delivered IN THE FUTURE. It’s not the price of oil being delivered on Friday. Do you understand that? So…the fact that oil jumped this week is because there is uncertainty about supply 6 months or more in the future. Do YOU know what supply is going to be like 6 months or a year from Friday? Do you know what the dollar will be like 6 months or a year from Friday? Do you know what demand will be like 6 months or a year from Friday?
edit: And btw, would you stop saying that supply is increasing while demand is falling? Unless you have a cite to back that up of course.
Can you wrap your mind around the fact that people are uncertain about what those factors may be like 6 months or a year from Friday? I’m not asking you to actually read what people have posted in this thread over and over again (that is a lost cause IMHO)…just to try and wrap your mind around what ‘uncertainty’ means in terms of the market by trying to project what things MAY be like months into the future based on how things were on Friday. Could you…well, just TRY?
-XT
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### Author:  [@Polerius](https://boards.straightdope.com/u/Polerius)
#### Post date: [June 10, 2008, 6:06pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/144 "2008-06-10T18:06:00Z")
Interesting [article](http://www.reuters.com/article/newsOne/idUSWLA462520080610?pageNumber=3&virtualBrandChannel=0&sp=true)
Some relevant quotes:
> [@](#):
>
> OPEC’s Secretary General on Tuesday appealed for calm, saying the record-high crude oil price was unbearable and did not reflect any shortage of supply in the market.
>
> “The situation is unbearable as far as we are concerned. I want to say, there is no shortage now and in the future.”
>
> “We are not happy with the current level of price for one reason. It has nothing to do with the fundamentals,”
>
> Badri … was critical of investment banks, some of whose forecasts for rising prices have been partly credited for sending oil to new peaks.
>
> “Their practice at this time is not in favor of producers and consumers,” he said. “We really cannot be guided by one or two speculators.”
>
> OPEC, which currently has 13 member-countries, was willing to raise production if needed, although there was no demand for extra barrels.
>
> “Nobody is asking for oil at this time. We are checking with our member countries. There is no queue for oil,” he said.
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### Author:  [@bordelond](https://boards.straightdope.com/u/bordelond)
#### Post date: [June 10, 2008, 6:12pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/145 "2008-06-10T18:12:06Z")
Those in this thread who think the speculation angle has been overblown: is using Badri’s quote (post #144) a sufficient cite that speculation is outweighing fundamentals? I know that “appeal to authority” is a type of logical fallacy … was wondering if this guy could be used as a credible source in this debate?
It’s interesting to me that Badri goes out of his way to mention “ **one or two** speculators” (though he’s probably talking about banks, not individual people, right?). Almost gives credence to the handful-of-moustache-twirling-baddies theory.
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### Author:  [@Renob](https://boards.straightdope.com/u/Renob)
#### Post date: [June 10, 2008, 6:21pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/146 "2008-06-10T18:21:30Z")
[QUOTE=bordelond]
Interesting read, but it’s an editorial from March. You can’t really use it as a source.
[/QUOTE]
Consider yourself lucky. Last year when I asked for a cite about oil demand **gonzo** gave me a New York Times article from 2005. :rolleyes:
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### Author:  [@Voyager](https://boards.straightdope.com/u/Voyager)
#### Post date: [June 10, 2008, 6:23pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/147 "2008-06-10T18:23:21Z")
[QUOTE=bordelond]
Those in this thread who think the speculation angle has been overblown: is using Badri’s quote (post #144) a sufficient cite that speculation is outweighing fundamentals? I know that “appeal to authority” is a type of logical fallacy … was wondering if this guy could be used as a credible source in this debate?
It’s interesting to me that Badri goes out of his way to mention “ **one or two** speculators” (though he’s probably talking about banks, not individual people, right?). Almost gives credence to the handful-of-moustache-twirling-baddies theory.
[/QUOTE]
It’s not an appeal to authority, since he is providing evidence that there is no current shortage, and he should know. There are no lines for gas in the US, there are no virtual lines for gas in the world. Perhaps the prices are being affected by concerns for the situations in six months, but they are impacting us now. Plus the statement implies that production can be increased if need be. Thus, no immediate shortage.
I wonder what would happen to prices if, instead of saying there was no need to increase production, he said that because of the impact on the world economy they were thinking of increasing production. Pop goes the bubble is my guess.
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### Author:  [@Renob](https://boards.straightdope.com/u/Renob)
#### Post date: [June 10, 2008, 6:24pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/148 "2008-06-10T18:24:39Z")
[QUOTE=gonzomax]
Wrongo. The problem with Israel saying they saw no choice but to attack Iran had much to do with the price jump of yesterday. That made speculators think a disruption in oil supply was impending. Note, nothing happened to the supply.
[/quote]
You do realize, don’t you, that part of “supply and demand” means future supply, not just current supply. A businessman would be pretty poor if he failed to take into account the future supply of his inventory (or the future demand for that inventory). So when oil prices jump in the anticipation that future supplies of oil will be tighter, that’s perfectly consistent with supply and demand.
> [@](#):
>
> I made it clear that approx. 60 percent is speculation. That is a lot. If you want to find multiple reasons for the other 40 have at it.
No, you made it perfectly clear that a few people (who apparently have no evidence to back it up) say this. _You_ have proven nothing, merely provided pretty useless cites (as usual).
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### Author:  [@Precambrianmollusc](https://boards.straightdope.com/u/Precambrianmollusc)
#### Post date: [June 10, 2008, 6:36pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/149 "2008-06-10T18:36:39Z")
[QUOTE=Voyager]
It’s not an appeal to authority, since he is providing evidence that there is no current shortage, and he should know. There are no lines for gas in the US, there are no virtual lines for gas in the world. Perhaps the prices are being affected by concerns for the situations in six months, but they are impacting us now. Plus the statement implies that production can be increased if need be. Thus, no immediate shortage.
I wonder what would happen to prices if, instead of saying there was no need to increase production, he said that because of the impact on the world economy they were thinking of increasing production. Pop goes the bubble is my guess.
[/QUOTE]
I would think you would see some drop in price , however the market would wait to see if actual production rose. There are those who think OPECs ability to raise production is very limited.
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### Author:  [@Precambrianmollusc](https://boards.straightdope.com/u/Precambrianmollusc)
#### Post date: [June 10, 2008, 6:47pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/150 "2008-06-10T18:47:52Z")
[QUOTE=bordelond]
Those in this thread who think the speculation angle has been overblown: is using Badri’s quote (post #144) a sufficient cite that speculation is outweighing fundamentals? I know that “appeal to authority” is a type of logical fallacy … was wondering if this guy could be used as a credible source in this debate?
It’s interesting to me that Badri goes out of his way to mention “ **one or two** speculators” (though he’s probably talking about banks, not individual people, right?). Almost gives credence to the handful-of-moustache-twirling-baddies theory.
[/QUOTE]
I think he is credible but has an alternate agenda. There are those who beleive differently
[QUOTE=IEA]
First, we need to step back from the detail and simply define that, in our opinion, this is a bull market driven primarily by demand potential outstripping slow supply growth – notably non-OPEC. With no slack in the system, prices have had to rise to choke off demand growth and bring the market into balance.
[/QUOTE]
No doubt Badri is correct, in that no one is currently queeing for oil, however the issue remains, what will be the situation several months out. Given supply is very tight with little option to raise supply, then any interuption to the supply will have people queeing , or at least bidding more for the available oil on the spot market.
ETA deleted bit mind saw that didn´t exist
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### Author:  [@Airman\_Doors\_USAF](https://boards.straightdope.com/u/Airman_Doors_USAF)
#### Post date: [June 10, 2008, 6:48pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/151 "2008-06-10T18:48:45Z")
[QUOTE=Voyager]
It’s not an appeal to authority, since he is providing evidence that there is no current shortage, and he should know. There are no lines for gas in the US, there are no virtual lines for gas in the world. Perhaps the prices are being affected by concerns for the situations in six months, but they are impacting us now. Plus the statement implies that production can be increased if need be. Thus, no immediate shortage.
I wonder what would happen to prices if, instead of saying there was no need to increase production, he said that because of the impact on the world economy they were thinking of increasing production. Pop goes the bubble is my guess.
[/QUOTE]
Well, to be fair, he is asserting that evidence exists. I’d like to see it, this alleged evidence.
The alternative explanation, much more conspiratorial and more in line with the oddball consensus of Americans (and a good number of people in this thread), is that he’s merely saying it to take the heat off of himself and his organization and put it somewhere else, being the head nogoodnik in the most evil entity of all, OPEC, the thieving Arab nations that cheat hardworking Americans out of money in conjunction with those, lying, conniving, greedy domestic oil companies who starve little babies for profit.
I think I got that right, didn’t I? Someone will be along to back me up shortly, that opinion is pretty mainstream at the moment. :rolleyes:
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### Author:  [@ralph124c](https://boards.straightdope.com/u/ralph124c)
#### Post date: [June 10, 2008, 7:01pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/152 "2008-06-10T19:01:32Z")
In the book “TWILIGHT IN THE DESERT”, the author voices the theory that SA has rather limited reserves of oil-and that thir production is actually beginning to decline. Is this the proof? SA rebuffed Bush’s request to pump more crude-is tjis the proof? Or does SA have enough cash, and doesn’t want to sell today for $130/barrel, what they can sell a year from now for $150??
If SA oil is actually in its decline phase, then we had better start deveoping electric cars, nuclear power plants NOW! :eek:
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### Author:  [@mazinger\_z](https://boards.straightdope.com/u/mazinger_z)
#### Post date: [June 10, 2008, 7:02pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/153 "2008-06-10T19:02:52Z")
[QUOTE=Voyager]
There are no lines for gas in the US, there are no virtual lines for gas in the world. Perhaps the prices are being affected by concerns for the situations in six months, but they are impacting us now. Plus the statement implies that production can be increased if need be. Thus, no immediate shortage.
[/QUOTE]
If you’re talking about lines for gas including diesel, then China definitely has that problem, worse than the US in the 1970’s. I posted a NYT article about 10 hr long lines where truckers could only buy 1/4 tank. The article also focuses on massive pollution and lack of standards abroad leading to bribery to use old trucks that wouldn’t be used anywhere in the Western world.
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### Author:  [@Renob](https://boards.straightdope.com/u/Renob)
#### Post date: [June 10, 2008, 7:07pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/154 "2008-06-10T19:07:48Z")
[QUOTE=mazinger\_z]
If you’re talking about lines for gas including diesel, then China definitely has that problem, worse than the US in the 1970’s. I posted a NYT article about 10 hr long lines where truckers could only buy 1/4 tank. The article also focuses on massive pollution and lack of standards abroad leading to bribery to use old trucks that wouldn’t be used anywhere in the Western world.
[/QUOTE]
And, as was the case in the U.S. in the 1970s, [idiotic government policies](http://www.csmonitor.com/2008/0611/p08s01-comv.html) are the cause of these “shortages.”
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### Author:  [@Voyager](https://boards.straightdope.com/u/Voyager)
#### Post date: [June 10, 2008, 7:19pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/155 "2008-06-10T19:19:49Z")
[QUOTE=Renob]
And, as was the case in the U.S. in the 1970s, [idiotic government policies](http://www.csmonitor.com/2008/0611/p08s01-comv.html) are the cause of these “shortages.”
[/QUOTE]
Holy crap, I agree with you! China is subsidizing gas prices, and thus controls imports - thus, a “shortage.” If the US did that, there would be a shortage here too.
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### Author:  [@Renob](https://boards.straightdope.com/u/Renob)
#### Post date: [June 10, 2008, 7:21pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/156 "2008-06-10T19:21:50Z")
[QUOTE=Voyager]
Holy crap, I agree with you!
[/QUOTE]
I’m pretty sure that’s the second sign of the Apocalypse. 🙂
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### Author:  [@Voyager](https://boards.straightdope.com/u/Voyager)
#### Post date: [June 10, 2008, 7:22pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/157 "2008-06-10T19:22:53Z")
[QUOTE=Airman Doors, USAF]
Well, to be fair, he is asserting that evidence exists. I’d like to see it, this alleged evidence.
The alternative explanation, much more conspiratorial and more in line with the oddball consensus of Americans (and a good number of people in this thread), is that he’s merely saying it to take the heat off of himself and his organization and put it somewhere else, being the head nogoodnik in the most evil entity of all, OPEC, the thieving Arab nations that cheat hardworking Americans out of money in conjunction with those, lying, conniving, greedy domestic oil companies who starve little babies for profit.
I think I got that right, didn’t I? Someone will be along to back me up shortly, that opinion is pretty mainstream at the moment. :rolleyes:
[/QUOTE]
I predict that the moment consumption starts dropping worldwide due to the price OPEC will find it in their heart to increase production just enough to lower prices to the optimal level - for them.
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### Author:  [@Voyager](https://boards.straightdope.com/u/Voyager)
#### Post date: [June 10, 2008, 7:32pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/158 "2008-06-10T19:32:23Z")
[QUOTE=Renob]
I’m pretty sure that’s the second sign of the Apocalypse. 🙂
[/QUOTE]
I’m getting out my anti-Rapture beanie even as I type. 🙂
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### Author:  [@Polerius](https://boards.straightdope.com/u/Polerius)
#### Post date: [June 10, 2008, 7:33pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/159 "2008-06-10T19:33:11Z")
[QUOTE=Voyager]
I predict that the moment consumption starts dropping worldwide due to the price OPEC will find it in their heart to increase production just enough to lower prices to the optimal level - for them.
[/QUOTE]
If consumption starts dropping worldwide, won’t the price start to come down anyway? Why the need to increase production?
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### Author:  [@Voyager](https://boards.straightdope.com/u/Voyager)
#### Post date: [June 10, 2008, 7:38pm UTC](https://boards.straightdope.com/t/oil-prices-what-if-it-is-caused-by-speculation/451609/160 "2008-06-10T19:38:53Z")
[QUOTE=Polerius]
If consumption starts dropping worldwide, won’t the price start to come down anyway? Why the need to increase production?
[/QUOTE]
Because if they increase production to lower prices, they don’t run the risk of having consumer nations structurally lower demand. Say people respond to higher prices by reducing their driving. They’ll start driving again as soon as prices go down. However, if the prices are high for long enough to drive lots of people into hybrids or other high MPG cars, the demand is decreased permanently.
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