This is a good article on what is behind the spiraling oil prices:
‘Perhaps 60% of today’s oil price is pure speculation’
In a nutshell:
- Although demand for oil has increased over recent years, so has supply, with US crude oil inventories being at its highest level is over eight years.
- Over the past two years, global supply has in fact exceeded global demand (US Dept of Energy)
- The price of crude is now controlled by an elaborate financial market system, as well as the four major (Anglo-American) oil companies
- International oil exchanges in London and NY are crucial
- It is the buying and selling of oil futures or derivative contracts that now largely set physical oil prices
- There is a huge, gaping loophole in US Govt. regulation of oil derivatives (as found by a US Senate sub-committee)
- Persons within the US are able to avoid all US market oversighting or reporting requirements by routing trades via the ICE Futures exchange in London
- Oil prices were around $60 a barrel when this started in 2006. Two years later they are approaching $150 a barrel
- Hedge funds and banks assist in the driving up oil prices through hedging and speculation
- Speculators trade on rumour, not fact. As a result, when oil companies, refiners and countries begin to hoard oil, supplies appear even tighter, leading in turn to support higher prices.
- Goldman Sachs and Morgan Stanley are two leading energy trading firms. Citigroup and JP Morgan are major players who finance hedge funds and speculators
- Selling the US Dollar ‘short’, and oil ‘long’ is a common strategy
- With speculators pushing up futures prices, there is a financial incentive for refiners to buy additional oil today, even at a high cost, if the futures price is even higher.
For insomniacs, 100+ years of the history of world oil prices can be found at:
History and Analysis -Crude Oil Prices
How easy is it to get into crude oil contracts? Just one of hundreds of sites:
Traderealtime.com