Home Viewpoints Economics What"s driving the price of Oil? Saturday, 22 November 2008
             
What"s driving the price of Oil? PDF Print E-mail
Monday, 05 May 2008 12:58
We"ve all cringed at the sight of the prices at the pumps, but what"s driving the staggering and persistent climb? Demand? Unlikely. If it were demand, then how could it have changed so dramatically in such a short period of time? Sure, China is certainly demanding more than before; China, as big as it is, however, is still not big enough to sway world demand to the extent that we"ve seen in the past year. So what is it?

Yes, I know, everyone"s got politics on the tip of their tongue. The truth is, that that"s probably a big factor. The even greater truth, however, is that this is really the underlying factor - the real cause of the rise in price is speculation. That"s right; folks like you and I, investors, buying-up contracts in the belief that prices will continue to rise. The funny thing is that it becomes a circular and self-fulfilling prophecy. Although we all complain about the rising price, we too might be responsible for those very prices.

There is a silver lining, at least for those of us who are speculating. For said investors [speculators], they"re hedging their increased pumping fees by profiting for those same rising prices in the capital markets. If you"ve ever studied economics, then you"ll quickly be reminded of the Prisoner"s Dilemma. Although its in our interest, collectively, to quit the speculation, we are best served individually by joining-in on the free-for-all in the futures market. Like the saying goes: if you can"t beat "em, join "em.
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