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Unhinged oil prices

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Mon, Sep 22, 2008 at 1:49 pm

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Unhinged oil prices

9-22-08 by dugan

Oil prices shot up by an all-time record $25 a barrel in one day because, um, because… uh, well, for no good reason. It’s all paper trading and has nothing to do with how many barrels of crude oil were sold or bought. It’s just the free, free market at work, without any yucky government regulation to get in the way of profit. Here, from our friend Insider, is how he sees it:

"No change in supply or demand occurred today. No war threat, pipeline leak, shipwreck, nothing. The spike beat what happened after the Arab Oil Embargo, Wreck of the Valdez, Hurricane Katrina. What’s this about–The Wreck of the Wall Street Speculator?

"What has apparently happened is a change in the supply and demand for paper rights to oil, not the liquid oil itself. Hedge funds and others are diving out of stocks and bonds to buy oil paper which is increasing the demand for the paper barrels and driving the reported price. The buyers of the paper are scared that the problems on Wall street are about to spread out from the financial sector. Fearing that other types of stocks are due to crash, hedge fund managers and others are buying the paper fast as they can.

"If the price holds, we can expect to feel it quickly at the pump.

"This shows the effect of speculation and insiders’ fear that the $700 billion government bailout won’t be enough. However, if it doesn’t correct itself fast we could see pump prices up 30 cents per gallon and billions more in consumer costs for already strapped consumers. While Wall Street is the responsible party, the oil companies will eagerly take the extra profits created by the speculation."

Here’s another interesting detail from the Financial Times:

"The jump in oil prices to an intraday high of $130 a barrel was
exacerbated by a squeeze on short positions ahead of the expiry at the
close of the Nymex October futures. This forced some financial
investors to cover their short positions to avoid taking
delivery of physical barrels of oil."

So the buying of "oil" had nothing to do with the physical oil. It’s all about finance itself–the same mindset that is trashing the rest of our economy. But neither Congress nor the White House have done one actual thing to fix the regulation, or lack of it, in these markets. So if you’ve read this far, take a minute send your gas bill to Congress, and demand change. 

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