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The real reason why oil prices are rising

scorpiostar Avatar
8y, 5m agoPosted 8 years, 5 months ago
Any Opinion about this issue, i have read this article in one of the magazine, are they right ?

By now it is becoming too obvious that the United States is playing the oil game all over again. And this is the desperate gamble of a country whose economy is neck deep in trouble.

Given this scenario, managing prices of oil is central to the US economic architecture. Expectedly, this gamble has been played in a great alliance between the US government, US financial sector and the media.

* The impending collapse of the US dollar on account of the inherent weakness in the US economy caused by its structural weakness as reflected in the sub-prime crisis;
* The repeated softening of the interest rates in the US that has the potency to kill the US dollar; and
* How the fall in the US dollar suits the US corporate sector, especially its omnipotent financial sector.

Naturally, since the past few years, the US financial sector has begun to turn its attention from currency and stock markets to commodity markets. According to The Economist, about $260 billion has been invested into the commodity market -- up nearly 20 times from what it was in 2003.

Coinciding with a weak dollar and this speculative interest of the US financial sector, prices of commodities have soared globally.

And most of these investments are bets placed by hedge and pension funds, always on the lookout for risky but high-yielding investments. What is indeed interesting to note here is that unlike margin requirements for stocks which are as high as 50 per cent in many markets, the margin requirements for commodities is a mere 5-7 per cent.

This implies that with an outlay of a mere $260 billion these speculators would be able to take positions of approximately $5 trillion -- yes, $5 trillion! -- in the futures markets. It is estimated that half of these are bets placed on oil.


Readers may note that oil is internationally traded in New York and London and denominated in US dollar only. Naturally, it has been opined by experts that since the advent of oil futures, oil prices are no longer controlled by OPEC (Organization of Petroleum Exporting Countries). Rather, it is now done by Wall Street.

This tectonic shift in the determination of international oil prices from the hands of producers to the hands of speculators is crucial to understanding the oil price rise.

Today's oil prices are believed to be determined by the four Anglo-American financial companies-turned-oil traders, viz., Goldman Sachs, Citigroup, J P Morgan Chase, and Morgan Stanley. It is only they who have any idea about who is entering into oil futures or derivative contracts. It is also they who are placing bets on oil prices and in the process ensuring that the prices of oil futures go up by the day.

But how does the increase in the price of this oil in the futures market determine the prices of oil in the spot markets? Crucially, does speculation in oil influence and determine the prices of oil in the spot markets?

Answering these questions as to whether speculation has supercharged the demand for oil The Economist, in its recent issue, states: 'But that is plain wrong. Such speculators do not own real oil. Every barrel they buy in the futures markets they sell back again before the contract ends. That may raise the price of 'paper barrels,' but not of the black stuff refiners turn into petrol. It is true that high futures prices could lead someone to hoard oil today in the hope of a higher price tomorrow. But inventories are not especially full just now and there are few signs of hoarding.'

On both counts -- that speculation in oil is not pushing up oil prices, as well as on the issue of the build-up of inventories -- the venerable Economist is wrong.
scorpiostar Avatar
8y, 5m agoPosted 8 years, 5 months ago
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#1
interesting. ameiica has plenty of oil itself , it just wants to use everyone else's oil, there agendas are wrong and they will exploit anyone for anything. why do you think iraq and iran are always on the hitlist?
#2
Well one of the key aspects of the rise in the price of oil is the speculation, but to attributite it to 4 organizations is a bit of a stretch. OPEC has repeatedly stated that oil should, at current production figures, be around $70ish per barrel. The rise in oil prices is hurting everyone, from the poorest across the world to the wealthy in the developed world (but crucially not those who are super rich). With the fall in the dollar due to the weakness in the US economy, the ongoing war in the middle east and just the general jitters of the world economy of late - there is a ripe opportunity for small rich groups to increase and profit from this imbalance - think about who could benefit from this chaos.

There should be no reason for this increase, other than rampant speculation. The world oil supplies are steadily increasing - enough to meet the majority of the demand, but somebody, somewhere is making a *LARGE* amount of money and possibly political gain from the misery of the vast majority of people have and are undergoing. Recently the US Government stated that it was going to investigate the money trails to find out who has been profiting from this, so I'm guessing that we'll never find out the true reason why.
#3
bloody politicians are always hiding something arent they

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