Friday, May 30, 2008

Not so much of an oil conspiracy

I don't profess to know much about oil or other financial things, but BT suggested maybe I should do a rebuttal to her "conspiracy" post, so here are some of my thoughts:

1. China and India are sucking up huge amounts of oil that they didn't use even as recently as 5 years ago. Combined, their populations are about 8x that of the USA.

2. Ditto with America with the proliferation of gas guzzling SUVs.

3. The run up in oil started with Katrina shutting down pipelines, refiners and offshore supplies. Oil hasn't looked back.

4. Oil is priced in dollars. The dollar has depreciated substantially in the past few years, making oil more expensive.

5. When the price of oil started going up based upon simple fundamentals, the hedgies and others saw the runup and jumped on going long oil to enjoy the profits. (BTW. If you have money in Calpers or most mutual funds, you are probably a hedgie and don't know it.)

Now, virtually everyone is saying oil is not a bubble, that “this time is different,” and this time we really are running out of oil. For those who were around in the 70's, you will remember the exact same comments. For those of you who were around in 2005 at the peak of the real estate bubble, you will also remember everyone (except us AB readers), saying the exact same thing about real estate. I’m sure the Dutch said the same thing in 1634 about tulips, but my memory doesn’t go that far back.

I say no conspiracy, just another bubble that is about to deflate. But that is just my $.02 worth.

9 comments:

Sippn said...

With ya.

So along with that, do you think any small fraction of those newly worldly and comparatively wealthy Chinese and a few from India might increase the population here soon... creating a new population boom in CA?

Paul said...

Sippn: I'll let Mrs. Paul answer that. "我爱加利福尼亚."

Actually, the problem is for them to get the visas. H1B's are in short supply overall. And our gubment still hates the Chinese (if the difficulty of getting even a tourist visa is any indication). We are happy to sell them our subprime and buy their exports, but apparently don't think it's a good idea for them to come and visit.

Buying Time said...

In either case, I think our government needs to show leadership on this issue and help wean Americans from our oil addiction. This would seem to be a no-brainer....Reps should love it cause it would make us more energy independent (reducing national security threats), and Dems should love it cause its the right thing to do environmentally.

Its not like we haven't done this in the past. First there was wood, which depleteted all the local forests, then there was whale oil, which were hunted almost to extinction. Then came coal, natural gas, nuclear and oil. As resources dry up, our society has adapts. Of course we were never this heavily invested in a particular source of energy before, so the transition will be much more difficult, and Americans will need some prodding.

sacramentia said...

off topic:

I just opened some mail about the asbestos at Oak Ridge High. This was huge deal 4-5 years ago when EDH was growing dramatically. Now that the growth has stopped there is almost no word of Asbestos, but surely it did not all go away.

Maybe all the noise was being generated by a bunch of no-growth NIMBYs.

Patient Renter said...

I hope it's a bubble and that it deflates. If all the speculative money were forcibly removed from oil, I'm sure we'd see a big price pullback. Here's a choice quote from the other day (either from Mish or CR, I forget which):

"...Assets allocated to commodity index trading strategies have risen from $13 billion at the end of 2003 to $260 billion as of March 2008, and the prices of the 25 commodities that compose these indices have risen by an average of 183% in those five years!"

It was also pointed out that this increase in demand from investment funds is almost equal the recent increase in demand from China.

sacramentia said...

Is there actually reliable data on how much oil is really leaving the middle eastern countries?

If the exporters purchased the futures and then don't deliver but say that they did, it would create an illusion of even greater increase in demand.

Mish had a post on his site about how the cost of tankers is going through the roof - partially caused by Iran storing crude in tankers. A good way to deliver oil to nowhere.

Paul said...

Following up on Sacramentia's post:

Today's Business Week reports Iran has 30 million bbs in tankers because they don't have buyers for it. Assuming there is some truth to this, that would suggest that current prices are not driven so much by demand, as they are by futures speculators in the oil pits.

Sippn said...

AB - off topic - got you an article to read at Calculated risk about price changes vs distance and desirability of area.

http://calculatedrisk.blogspot.com/2008/05/housing-bubble-and-bust-tale-of-three.html

Kip said...

Bubble or conspiracy, I reject both choices.
It's not a bubble in the classic sense because fund driven investment into commodities is a fundamentally different machine than individual investor speculation.
And it's certainly not a concpiracy, that theory is driven by ignorance.
No my friends, I'm afraid this is simple economics at work. Supply and demand.
As far as the government doing something about it, well, many Americans (like me) still believe the government has no business interfering in the market. You think it's the 'right' thing to do? than support alternative energy technologies with YOUR money. Stop buying oil if you think the country should ween off oil. Personal responsibility is the key, not more corrupt bureaucracy and regulation.
fwiw, the market has already started the process. The inevitable result of rising gas prices will be the economic viability of emerging technologies. So please try to leave the government out of it. The last thing we need is more government.