On Tue, 20 Jan 2009 19:59:00 -0500, "Eisboch"
wrote:

I don't doubt for a minute that investment speculation drove the price up.
But the reason it became of interest to the speculators was still
fundamentally based in supply/demand.

I disagree.

Supply wasn't an issue - there was so much oil flooding the market
that they had (and still have) oil floating out and about on tankers
just waiting for some place to put it. Demand wasn't an issue either
- did you have lines waiting for gas even after Katrina?

No.

It was pure speculation. Money cost next to nothing and when you
could place a bet on oil going up due to market psychology with money
that cost you nothing and make 150% in a week on that bet everybody
wanted in on it further driving the price up - it was a classic tulip
bulb bubble.

Consider that you could have a rise in the per/bbl cost of oil if
there was fog in the Houston Ship Channel. I don't know about you,
but I doubt there is ever a day when there isn't fog in the Houston
Ship Channel - or so I've been told. And we're talking $5/bbl rises
here - that's speculation. Somebody sneezes in Iran, the price goes
up another $5/bbl - that's speculation. Goldman Sachs, who clears all
the oil trades in the world by the way, publishes a report saying that
demand will drive up the price to $150/bbl and damned if the traders
didn't try to get there.

It's not coincidence that when the capital markets started drying up
and the hedge money market funds started losing money that the price
of oil suddenly and dramatically dropped a full 2/3's of it's value.

It wasn't demand, it was pure speculation.

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

--

Math illiteracy affects 8 out of every 5 people.