On Tue, 11 Mar 2008 17:56:04 -0400, "Eisboch" wrote:


"Short Wave Sportfishing" wrote in message
.. .

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

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. :)

Well, you and Doug have convinced me. I've thought and read about this
quite a bit since our last discussion and I think you guys are absolutely
correct. The price of oil (not the actual oil) is being bet on daily.
Other market factors influence the price, but not like the wild, get rich
quick speculation.

Oh, and for the politicals .... Bush has absolutely no control over this.

There is literally nothing any politician can do about it - that's
what's so interesting.

The bubble will burst when the EU and BRIC countries start feeling the
inflation. BRIC is already feeling some inflationary pressure and the
EU is ignoring inflation to concentrate on growth and they will be
seeing it very soon - most likely by July, possibly before.

Oddly, the one agency that can do something about it is actually the
FED. These two really innovative moves it's made over the past two
days makes it pretty clear that the FED has a handle on it and it
using some unique magic in their bag of tricks. What they are
basically saying is screw inflation - get the dollar back on track,
get the banks lending again and growth back to 2.5/3% - then we'll
deal with inflation because by the time we get back to steady,
inflation will take care of itself. Even more interesting, the EU
Central Bank has finally woke up to the fact that they have to
coordinate with the FED which they did today.

Very interesting what Bernacke and his cronies have done - not your
usual techniques.