On Tue, 11 Mar 2008 17:15:12 -0400, "Eisboch" wrote:


"John" wrote in message
.. .

Price of oil - if the value of the dollar drops by 50% oil cost 100%
more. A $40 bbl of oil now costs $80 add in higher demand and that
accounts for the rest of the inflated price.

I just don't get it. (I am an engineer, not an economist :-) )

The dollar has not dropped by 50%, yet the price of oil has more than
doubled (more if you go back a couple of years).
Plus ... it's a world wide price .... not unique to the US. All countries
are paying much higher prices.

It's not about demand - demand accounts for maybe 10% of the increase
over the fundamental price of $48.75 (based on current demand,
historical data and current demand data). They are blaming "demand",
but demand has stayed relatively level - despite the best efforts of
the IOC prognosticators. OPEC, at the last data point, has at least a
3.7 million spare production hold on a per day basis.

What's fueling this is pure speculation. If you take a look at the
long contracts, over the past six months that this run up has been
occurring, the increase in long term interest has quadrupled. That
means that interest in buying oil in say May, at $125 a barrel, has
increased four fold - there's money on the table that is willing to
buy at that level.

It's a self-fullfilling prophecy. If there is that kind of money
willing to buy against $110, which is going to win out?

Add the fact that there is too much money chasing too little profit
and you get speculation.

Also, I read something today that oil is now being used as a currency
- people are buying oil and using the contracts as currency to
purchase other commodities in commodity swaps which is driving up the
prices of wheat, corn, soy bean and palm oil.

That is a classic speculative bubble. And when it explodes, it's
going to be spectacular.

That's my story and I'm sticking to it. :)