Oil Prices

In a couple of different venues, I’ve seen a desire expressed that “something” be done to rein in oil speculation, which is believed by some to be playing a non trivial role (in addition to demand/supply issues, and the weak dollar) in the high price of oil.

I’ll admit, there is something appealing to the notion of restricting participation in the oil futures markets to those who can actually take delivery of the product.

Unfortunately, there are two big problems with that desire.

First, we have a little matter of the market being international.  Getting all the global commodities exchanges to cooperate is likely to be almost as challenging as herding cats.

Second…well, I’ll just point to an article in Friday’s Wall Street Journal (subscriber link):

While Nymex operates as a U.S.-regulated market, ICE Europe operates as a foreign exchange with trading terminals in the U.S. and is exempt from U.S. rules on reporting and speculation limits.

One person close to the matter was unsure if an actual agreement on setting levels had been set. Another said that even if the FSA and ICE Europe had agreed to the setting of limits on the front-month contracts, the FSA still isn’t sure who is doing the trading.

It’s kind of hard to regulate the speculators if you don’t know who they are, don’tcha think?

Seen in the Houston Chronicle:

If you think oil and gasoline prices are high now, they may seem cheap before long, according to CIBC World Markets Chief Economist Jeff Rubin.

Rubin, who predicted three years ago that oil would reach $100 a barrel, thinks it will climb to $225 a barrel in four years. Gasoline could be around $10 a gallon by that time, he says.

It’s all about tight supplies and rising demand. Rubin points out that almost all the growth in global petroleum liquids production since 2005 has been in natural gas liquids. Those, he says, are not a useful substitute for oil and can’t be economically turned into gasoline, diesel or jet fuel.

Like that won’t aggravate the portion of the oil price mess caused by speculators paying the contango game.

At some point, a cooling global economy and changes in behaviors should ease real demand (as opposed to speculator-driven demand), right?

I’ve been meaning to do some spreadsheet jockeying for quite some time now, to satisfy my curiosity about how much of the ongoing spike in oil prices is the result of a weaker dollar.

The good folks over at the Washington Post have partially addressed my curiosity:

Clicking on the graphic will take you to the full-sized one at WaPo.

Personally, I would have gone back a few more years to do the comparisons…but these charts are interesting enough to ease my curiosity — it really looks more like a function of oil costing more, than a crashing dollar.

Remember all the fuss raised in mainstream and blogospheric media outlets when oil prices were bumping up against $100/barrel recently?

I note that apparently only bad news merits attention. I haven’t noticed too much being said in those same outlets about recent developments.

From the AP:

Oil prices fell Thursday in Asia, extending an overnight decline of more than US$1 a barrel after the U.S. government reported unexpectedly large jumps in stockpiles of crude and gasoline and a surprise increase in stocks of heating oil.

Coming amid anxiety about the U.S. economy’s health, and concerns that demand for oil and gasoline is falling, the inventory report reinforced a growing view that oil and petroleum product supplies are adequate.

Light, sweet crude for March delivery fell 16 cents to US$86.98 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract fell US$1.27 to settle at US$87.14 a barrel in Wednesday’s floor session.

Please note, however, that this improvement in the backdrop of oil prices shouldn’t give license for folks to stop making (or at least considering making) some conservation-minded changes in their daily lives.

Even if you don’t believe in global warming or the peak oil crises, there are still plenty of good reasons to live a more conservation-minded lifestyle.

(I accept global warming and peak oil concerns, but not to the extent that some of the green crowd would like. Of course, that may be because I understand that normal variability can mask subtle changes, and because I appreciate the tendency for issues to be over-magnified when framed in the language of activist hysteria.)

Seen at the Guardian, and submitted without further comment:

Asked if [Ryanair CEO Michael O'Leary] was concerned about the chill that appears to be spreading across the sector, he said: “Not a lot. In many ways we would welcome a chill or something even colder.

“We would welcome a good, deep, bloody recession for 12 to 18 months.

“One, it would lead to lower fares and, two, it would expose the regulatory scam that is going on over here,” a reference to the group’s long-running argument with the Civil Aviation Authority over airport charges.

O’Leary also claimed that a recession would put an end to the “environmental bullshit among the chattering classes that has allowed Gordon Brown to double air passenger duty. We need a recession if we are going to see off some of this environmental nonsense.”