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MrRodgers -> Why is oil anywhere around $100 bbl. ? (1/11/2012 7:00:46 AM)
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There is plenty, plenty oil. There are no major impacting wars anymore. Lybia supplied 2% and it may be now 1% or less, so what.
We have been told that prices are determined by supply and demand. That is only partially true and almost always in finished goods...not in (raw) commodities. Why ?
It IS within the realm of how I define capitalism which is in fact...'moneyism' i.e., turning paper into money. I will explain.
The pricing of say Jordan shoes or that hammer you need to replace is determined by the actual consumer. They are items that can sit on a shelf and wait for demand to come to it or once enough time passed, discounted and sold.
However, when it comes to commodities, it is quite another story and it will be the cause of serious economic impact throughout the world and why China for example is buying up all that they can.
I can either get a contract to make Jordan shoes and make money, (starting in I think, in Vietnam) or I can make hammers and compete with other hammers on the market but when it comes to commodities, here is the story.
It isn't practical for me to get into the oil drilling, refinery or retail business...it would cost $billions. But I see an opportunity to make money on oil as well as other commodities. So how do I make money on oil and without being in the excavation, production or retailing of any ?
I create a piece of paper called a contract for the purchase of said commodity. That piece of paper has certain and now standard terms upon which I can do what ? Speculate. Those terms allow me to then sell the piece of paper and with it...contract rights, at a higher price if I can get it.
It is the value upon which I sell that paper that then sets or re-sets the price of the commodities the contract offers. This is called speculation. The speculation being that I can sell that piece of paper (and the rights contained therein) for more than I paid for it. The ease with which almost anybody can take part in this part of capitalism is the paper-speculation area, it what drives the price of commodities.
Why is it a bad thing ? It is because the supply of oil being actually higher than demand requires reveals a stubbornness in the retail sector to reduce prices to increase demand. Gas retailers don't need to at the price of around $3.50/gal. or so. Obviously they are selling gas.
So how is it that I suggest that the price of gas is not falling like it should ? It is because refiners simply can't refine oil for which there are no buyers (in the form of gas) and at $100 BBL., supply is about to bury them.
Some refiners reporting some losses for parts of 2011. Just how can an oil refiner lose money when it was supposed to be demand for that oil that caused it to be over $100/bbl. ? Oklahoma refineries can't refine all of the oil excavated now at $100/bbl.+.
So it becomes obvious, it is because the supply of raw crude at the refinery is so high, they cannot possibly refine it all. So why is oil above $100 bbl. ? See above.
It is the unfettered, untaxed (relatively) and unregulated speculation that has prices artificially high. Most oil companies like consumers are too, as Adams warned...slave to the speculator. They too need to buy these contracts or margin suffers and are thus protecting their own interests.
The Eurozone is considering an additional tax (the transaction tax failed because 75% was coming from London) on this type of speculation on commodities.
What say you ? Should we regulate and tax this form of price speculation via commodity paper-trading ? I say yes, society has a compelling interest in minimizing price swings and inflation from speculation in all commodities.
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