The Price of Gas: So Much for Supply & Demand

The last time the price of Brent crude closed below $100 a barrel was Oct. 6, 2011. It’s since gone up nearly 30 percent, to a high of $126.20 on March 1. Tensions over Iran’s nuclear program have people spooked that a potential attack would disrupt the country’s 2.2 million barrels of daily oil exports. And so money has been pouring into oil futures contracts, driving up the price without any significant change in the underlying supply-and-demand fundamentals. Only the threat of one.

[...]

In the U.S., the world’s biggest oil consumer, demand is close to a 15-year low.

[...]

So who’s buying?

Talk to oil analysts these days and chances are they’ll tell you that more than half the spike in the oil price is due to speculators—specifically noncommercial users. That’s jargon for investors who are buying up futures contracts not because they intend to use the oil, but because they think it’s a good investment. These aren’t airlines or refining companies; these are money managers betting that the price will go up. And so far they’ve been right, thanks to themselves.

[...]

According to Tim Evans, an oil analyst with Citigroup [...], money managers now hold[...] “about 290 days’ worth of Iranian oil exports, [which] implies that we’ve already priced in a nine-month outage from Iran.”

[...]

And that’s without a single shot fired.

  Business Week

Speculators, wrote [Murray N. Rothbard in the summer of 1990], “perform an important function.” If people reacted mechanistically to fluctuations in supply, rather than anticipating future fluctuations, “a cutoff of Middle Eastern oil would disrupt the economy by causing a sudden drop in supply and a huge jump in prices. Speculative anticipation eases this volatility by raising prices more gradually.” In short, it could be worse – and will be worse, once the shooting starts in the Strait of Hormuz.

[...]

Newt Gingrich is right, albeit for the wrong reasons: the President’s policies – his foreign policy, specifically – are indeed the driving force behind rapidly rising gas prices. The problem for Gingrich and his fellow Republican war-hawks, however, is that they would march us off to war – and off an economic cliff – much sooner than the current occupant of the White House.

  Justin Raimondo

...but hey, do what you want...you will anyway.