BEYOND ECONOMICS 101: High oil prices have nothing to do with supply and demand.‏‏‏

Just found more proof than oil prices have nothing to do with supply and demand.

excerpt from article:

http://aljazeera.com/news/newsfull.php?newid=131649

<"As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. . . . Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the ‘tail that wags the dog.’[8]

Wall Street financial giants that created the Third World debt crisis in the late 1970s and early 1980s, the tech bubble in the 1990s, and the housing bubble in the 2000s are now hard at work creating the oil bubble. By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher.[9]

This has led to a steady rise in crude oil inventories over the last two years, “resulting in U.S. crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices. . . . In fact, during this period global supplies have exceeded demand, according to the U.S. Department of Energy.”[10]

The fact that the skyrocketing oil prices of late have been accompanied by a surplus in global oil markets was also brought to the attention of President George W. Bush by Saudi officials when he asked them during a recent trip to the kingdom to increase production in order to stem the rising prices. Saudi officials reminded the President that “there is plenty of oil on the market. Iran has put some 30 million barrels of oil that it can't sell into floating storage. ‘If we produced more oil, it wouldn't find buyers,’ says the Saudi source. It wouldn't affect the price at all."[11]

And why producing more oil “wouldn’t affect the price at all”? Well, because what is driving the soaring oil prices is not shortage but speculation: “with so much investment money sloshing around in the commodities markets, the Saudis calculate they have no hope of controlling short-term price fluctuations. They blame the recent price run-ups on speculation and fear of shortages [not real shortages], factors they say are beyond their control.”[12]>

I rest my case. Moving on.
 
Some people just can't get beyond supply-demand thinking. The speculation in oil futures is a hedge against dollar values and means that traders have no confidence that the value of the dollar is stable. Especially with the Iran oil borse creating alternatives for the world. It just means to me that the speculators are sure that it will take more of their dollars to buy the same amount of oil in the future and they are willing to bet on it. Could it be the world is beginning to not want dollars? No value.
I also want to say that all this talk of taking ten years to produce oil is nonsense. I have seen fields that were drilled, produced, and depleted in ten years. More propoganda, I don't know for what purpose, although I have some ideas and they all have to do with invading Iran. Regardless, to say it takes ten years to develop an oil field, no matter how remote, is a lie for people who have never been involved with the 24 hours a day hurry up we are losing money oil field.
 
If one claims supply and demand has zero effect on prices, then you certainly cannot agree with any free market theories. I think it's a bit ignorant to say supply and demand has absolutely nothing to do with it. It most certainly HAS affected prices, especially the import markets when China declared its national production peak and that it would be entering the import market. Furthermore China and India's demand is increasing at alarming rates as they become more industrialized.

However there is also no denying the effects of speculation premiums (thanks in no small part to the instability our foreign policy creates) AND our floundering dollar, the latter of which hardly a soul will discuss. Our dollar has really jacked up oil prices. The cost of oil in gold has stayed flat! I can accept expanding our thinking beyond supply and demand as opposed to completely discounting fundamental principles of markets.

Our price per barrel should be near $65.00
 
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riviera1992 said:
excerpt from article:

http://aljazeera.com/news/newsfull.php?newid=131649

<"As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. . . . Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the ‘tail that wags the dog.’[8]

Wall Street financial giants that created the Third World debt crisis in the late 1970s and early 1980s, the tech bubble in the 1990s, and the housing bubble in the 2000s are now hard at work creating the oil bubble. By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher.[9]

This has led to a steady rise in crude oil inventories over the last two years, “resulting in U.S. crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices. . . . In fact, during this period global supplies have exceeded demand, according to the U.S. Department of Energy.”[10]

The fact that the skyrocketing oil prices of late have been accompanied by a surplus in global oil markets was also brought to the attention of President George W. Bush by Saudi officials when he asked them during a recent trip to the kingdom to increase production in order to stem the rising prices. Saudi officials reminded the President that “there is plenty of oil on the market. Iran has put some 30 million barrels of oil that it can't sell into floating storage. ‘If we produced more oil, it wouldn't find buyers,’ says the Saudi source. It wouldn't affect the price at all."[11]

And why producing more oil “wouldn’t affect the price at all”? Well, because what is driving the soaring oil prices is not shortage but speculation: “with so much investment money sloshing around in the commodities markets, the Saudis calculate they have no hope of controlling short-term price fluctuations. They blame the recent price run-ups on speculation and fear of shortages [not real shortages], factors they say are beyond their control.”[12]>

I rest my case. Moving on.
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Nope, all speculators can do is drive up the price of paper oil, not the real thing. All they can do is drive up the price of futures contracts. A speculator would "rather be dead" than to actually own any real barrels of oil. So they always sell the futures contract before the time comes when they would have to pick the barrel up at the specified location. Speculators dont have ware houses or own refineries.. so they will sell the barrel of oil at any price to people who do. Speculators dont keep any supply off the market and they dont have any demand for real barrels of oil. Therefore they do not affect the price of real barrels of oil. All they are doing is betting on future price of oil. If they are good at predicting supply and demand changes of real oil barrels in the future they will be able to sell the futures contract for more than they bought it, if they are bad and get it wrong thet will have to sell the futures contract at a loss.

Just like betting on a sports game does not change the outcome.. neither does speculation on futures contracts, or buying commodity index funds (because they are just a bunch of futures contracts)

(Also buying futures contracts to cover short lossses.. will only drive up the price of futures contracts temporarily, as it does not represent a growth in long term demand.)

Cheers
 
DriftWood said:
Nope, all speculators can do is drive up the price of paper oil, not the real thing. All they can do is drive up the price of futures contracts. A speculator would "rather be dead" than to actually own any real barrels of oil. So they always sell the futures contract before the time comes when they would have to pick the barrel up at the specified location. Speculators dont have ware houses or own refineries.. so they will sell the barrel of oil at any price to people who do. Speculators dont keep any supply off the market and they dont have any demand for real barrels of oil. Therefore they do not affect the price of real barrels of oil. All they are doing is betting on future price of oil. If they are good at predicting supply and demand changes of real oil barrels in the future they will be able to sell the futures contract for more than they bought it, if they are bad and get it wrong thet will have to sell the futures contract at a loss.

Just like betting on a sports game does not change the outcome.. neither does speculation on futures contracts, or buying commodity index funds (because they are just a bunch of futures contracts)

(Also buying futures contracts to cover short lossses.. will only drive up the price of futures contracts temporarily, as it does not represent a growth in long term demand.)

Cheers
Click to expand...

So essentially, what you are saying is those futures don't have any backing in real oil?
 
DriftWood said:
Just like betting on a sports game does not change the outcome.. neither does speculation on futures contracts
Click to expand...

Depends on if you bribe the referee. Do you really doubt that they're bribing the so-called referees?

Sure supply and demand have most or all to do with it. Both can be manipulated, people. In direct terms, when was the last time you heard of a new refinery opening in this nation? Refining capacity is absolutely at its limit and no effort whatever is being made to increase it. Why? So the oil companies can ensure demand outstrips supply enough to raise prices without regard to whether or not we can pump more than enough crude to meet our needs.

As for futures, they are motivated by supply and demand as well. And it's silly to say that future prices don't affect the commodity price at all--and not just because of crooked referees, either. Fuel retailers sell gasoline and diesel at the replacement price, not the price they paid for it. And that major factor is just for starters.

Supply and demand still have quite a lot to do with it. Perceptions of future supply and demand do, too. And both supply and demand can be manipulated. Don't want to provide the wall of text that would chronicle all the ways...
 
This book dispells Peak Oil Theory and is an EXCELLENT read!!!
I HIGHLY recommend it!

51831HTQZEL._SS500_.jpg



http://www.amazon.com/Black-Gold-St...d_bbs_2?ie=UTF8&s=books&qid=1212527846&sr=8-2



Experts estimate that Americans consume more than 25 percent of the world's oil but have control over less than 3 percent of its proven oil supply. This unbalanced pattern of consumption makes it possible for foreign governments, corrupt political leaders, terrorist organizations, and oil conglomerates to hold the economy and the citizens of the United States in a virtual stranglehold. There is no greater proof of this than the direct relationship between skyrocketing gas prices and the explosion of wealth among those who control the world's supply of oil.

In Black Gold Stranglehold, Jerome Corsi and Craig Smith expose the fraudulent science that has made America so vulnerable: the belief that oil is a fossil fuel and that it is a finite resource. This book reveals the conclusions reached by Dr. Thomas Gold, a professor at Cornell University, in his seminal book The Deep Hot Biosphere: The Myth of Fossil Fuels (Copernicus Books, 1998) and accepted by many in the scientific community that oil is not a product of fossils and prehistoric forests but rather the bio-product of a continuing biochemical reaction below the earth's surface that is brought to attainable depths by the centrifugal forces of the earth's rotation.
Jerome Corsi explores the international and domestic politics of oil production and consumption, including the wealth and power of major oil conglomerates, the manipulation of world economies by oil-producing nations and rogue terrorist regimes, and the shortsightedness of those who endorse expensive conservation efforts while rejecting the use of the oil reserves currently controlled by the U.S. government.


As an expert in tangible assets, Craig Smith provides an understanding of the history of America's dangerous dissociation of the dollar with precious—and truly scarce—metals such as gold and the devastation that would be inflicted on the U.S. economy if Middle Eastern countries are able to follow through with current plans to make the euro the standard currency for oil instead of U.S. dollars.
Black Gold Stranglehold is a thoughtful work that is certain to dramatically change the debate on oil consumption, oil dependence, and oil availability.


​
 
It's silly to say that anything 'disproves' peak oil. Oil is a finite resource (well, okay, it's renewable on a geologic time scale, lol). We are consuming oil at an astounding pace, an ever-increasing pace. Finite resources, when continuously consumed, will eventually peak and then run out. It's just a matter of timing.

You can say, "I don't think oil production has peaked yet." but, you can't say "I don't think oil production will ever peak."

I agree that the current insane run-up in oil prices does not have anything to do with supply. There is plenty of supply. It does, however, have a lot to do with demand, in that, global oil demand is at or near an all-time high. If we were consuming oil at 1950s rates, the price of oil would clearly be much, much lower.

But, the major causes are a weak dollar and speculation, imo.
 
The reason speculators are driving the price of oil up is because they believe that inflation will outgrow the increases they have created. In other words, by the time their purchase is delivered, the inflated price of the market will be higher than what they have paid. Not a good sign of things to come.
Also, refineries are not operating at full capacity. Last quarter they were operating at 89% capacity. I can tell you from experience, when there is a shortage of gasoline, it will be no secret. You will see it everyday as we did back in the late 70's on tv and at the stations. Everyday a mad scramble to get gas before the stations ran out. And rationing on top of that. Lines that were blocks long.
 
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acptulsa said:
Depends on if you bribe the referee. Do you really doubt that they're bribing the so-called referees?

Sure supply and demand have most or all to do with it. Both can be manipulated, people. In direct terms, when was the last time you heard of a new refinery opening in this nation? Refining capacity is absolutely at its limit and no effort whatever is being made to increase it. Why? So the oil companies can ensure demand outstrips supply enough to raise prices without regard to whether or not we can pump more than enough crude to meet our needs.
Click to expand...

Nope, because just like with all commodities.. If someone keeps supplies off the market to drive up prices.. then someone else will have the insentive to flood the market with it, to make a profit and gain market share. Thats what happens when prices go up.. people will increase supply. It does not matter if the price increase is caused by someone keeping supplies off market or if the demand has increased. Even if OPEC controlled all the oil in the market. The individual members would be selling oil on the black market behingd OPEC back to make a profit. You cant manipulate supply and demand in the long term.. because doing so is trying to fight the market forces. Its swimming upstream. Noone ever got rich keeping supplies of the market.

So why has there not been any new refineries opened in the last couple of years.. because the last couple of years the price of oil was not this high, and there was more oil in stock. Investors had no insentive to invest in oil companies when oil was cheap, as they could make better profit elsewhere. So no upgrading or development of oil refineries where made.. but this underinvestment came back to bite us all, eventually the supplies ran out and the price went up. Now ivestors are investing again in oil. But refineries dont get online overnight, it takes many years.

As for futures, they are motivated by supply and demand as well. And it's silly to say that future prices don't affect the commodity price at all--and not just because of crooked referees, either. Fuel retailers sell gasoline and diesel at the replacement price, not the price they paid for it. And that major factor is just for starters.

Supply and demand still have quite a lot to do with it. Perceptions of future supply and demand do, too. And both supply and demand can be manipulated. Don't want to provide the wall of text that would chronicle all the ways...
Click to expand...

Yes they will atleast sell it at todays reproduction cost. But the reproduction cost is a real thing. Its not something that speculators can drive up. Perceptions of future, does that drive up prices. Not unless you as a consumer are willing to pay more for oil today because you think oil will cost more tomorrow. So its not the speculators but consumers predictions about future prices that drive up prices.

Cheers
 
Here is another post i wrote some weeks ago.. saying the same thing in a slightly different way.

Actually the speculators are innocent scapegoats. Speculation in consumable commodities (as in most things except gold) does not increase the price of the commodity. Check it out:

Speculators do not buy real oil barrels, they buy future contracts on oil barrels. Futures contracts are paper receipts that say where and when in the future the holder of that piece of paper can pick up that oil barrel. A speculator would "rather die", than to own a real barrel of oil. A real oil barrel is useless to him as, as he does not own a refinery or a warehouse. He has to sell that piece of paper to someone that actually wants a barrel of oil before the pickup date. He will sell it at a loss if he has to. So all speculators can do is pump up the price of those pieces of oil paper, however that will not affect the price of real oil. A speculator makes money on predcting how much a real barrel of oil will be worth at a specific future date. If he is bad at predicting the future he will pay a to high price for the future contract, and then when the future comes he will have to get rid of that oil barrel by selling it at whatever is the market price for a real oil barrel. A speculator does not keep any real oil barrels off the market, nor does he have any demand for real oil barrels, this means speculators do not affect the price of oil barrels, all they are doing is gambling on how much a oil barrel is going to be worth in the future. You see?

Speculators are not evil or unproductive. They fill a very important function in the economy. They take on the risk involved with predicting the future price of a commodity. A farmer will not get much sleep at night if he cant be certain about next years price of corn. If the price changes he might go bust. So what he does is get a type of insurance, he sells a futures contracts, he sells a promise to next years corn. A speculator buys that piece of paper. The farmer sleeps well at night because he has just sold his next years corn at a agreeable price. He knows he will not go bust next year, regardless of what happens to the price of corn next year. The speculator is gambling that the price of corn will be higher next year, than what he payed the farmer, he takes on all the risk that the farmer was not willing to shoulder. He might be right and make a profit, or be wrong and make a loss.

Commodity speculators are essential to the economy. They really dont deserve all the bad press they are getting.

Cheers
 
Another look at the supply issue for crude oil. Saudi Arabia, the current top oil producer in the world, is trying to increase their production. They are starting development on a field called Khurais in their remote Eastern desert. The field is not new- it was discovered in 1957. It has not been tapped until now because the oil is very difficult and expensive to extract. Another possibly bad sign is that Saudi Arabia is going to be pumping water - some two million barrels a day- into the mile deep pockets to help extract the oil. Water is normally only used AFTER most of the oil has been extracted and there is not enough pressure to bring the oil to the surface. This is usually a well in its latter days of usability- trying to squeeze out a few more barrels. Eventually the water dilutes the oil to a point where it is not usable in a practical sense.

That they are going after such a site means that they do not have any other easily extracted oil to persue. They hope to produce up to 1.2 million barrels a day there.

Now the Saudis are deploying an extraordinary engineering effort to bring Khurais’s mile-deep oil to the surface. Seawater will be carried through new pipelines from the Persian Gulf and injected into oil-bearing rock to pressure the oil upward. Usually Aramco pumps seawater into a field only after several years of production, and some skeptics point to this as a reason to doubt that Khurais will live up to its billing. But Mr. Nasser said the huge seawater injection system at Khurais was about cost and logistics, not a sign of a weak field.
Click to expand...
http://www.nytimes.com/2008/07/01/world/middleeast/01saudi.html
 
IMO oil prices are not rising because of a lack of supply..the prices of oil, gold, wheat, and other commodities are rising because of the decline of the world’s reserve currency, the U.S. Dollar. Dollar value decline, entirely caused by inflation, precipitates speculative market action further raising oil and commodity prices. think it's like a chain reaction.
 
mongoose470 said:
if one claims supply and demand has zero effect on prices, then you certainly cannot agree with any free market theories. I think it's a bit ignorant to say supply and demand has absolutely nothing to do with it. It most certainly has affected prices, especially the import markets when china declared its national production peak and that it would be entering the import market. Furthermore china and india's demand is increasing at alarming rates as they become more industrialized.

However there is also no denying the effects of speculation premiums (thanks in no small part to the instability our foreign policy creates) and our floundering dollar, the latter of which hardly a soul will discuss. Our dollar has really jacked up oil prices. The cost of oil in gold has stayed flat! I can accept expanding our thinking beyond supply and demand as opposed to completely discounting fundamental principles of markets.

our price per barrel should be near $65.00
Click to expand...

In a perfect world....and one with a stable currency.
 
jjbond007 said:
IMO oil prices are not rising because of a lack of supply..the prices of oil, gold, wheat, and other commodities are rising because of the decline of the world’s reserve currency, the U.S. Dollar. Dollar value decline, entirely caused by inflation, precipitates speculative market action further raising oil and commodity prices. think it's like a chain reaction.
Click to expand...

Do you have any evidence to support your opinion? Last time I checked more people were using more oil...certainly seems like there's some sort of change in demand.
 
http://www.marketoracle.co.uk/Article4753.html
Data released last month:
Energy Sector: Crude Oil Demand from China , India , Rockets Upward

Long term supply and demand trends continue to keep energy prices elevated. The easiest to locate and cheapest oil to produce on the global scale has been for the most part found. Many of the major older fields are in decline. New production tends to be more expensive to develop, and access to potential fields is increasingly restricted by nationalistic concerns as governments try to control resources to benefit their own citizens. In many areas a shortfall of drilling and production equipment exists.

Demand for crude oil and liquefied natural gas (LNG) continues to rocket ahead, especially in dynamic economies that are continuing to grow even in the face of the slowing U.S. economy. Last month we saw the following developments in the energy sector:

• China 's consumption of crude oil and refined oil products both hit record highs in the first quarter of the year according to statistics released by the China Petroleum and Chemical Industry Association. China 's consumption of oil products - composed of gasoline, diesel and kerosene - rose by 16.5 percent year on year in the first three months. Crude oil consumption rose by eight percent. (Xinhua)

Data released recently by Chinese customs authorities show a surge in the emerging giant's oil imports in March. On a year-over-year basis, China 's crude oil imports rose 25 percent in March. Although there have been reports of diesel fuel shortages in China, the gains in China's oil imports may owe to inventory accumulation in anticipation of the Olympics rather than a dramatic acceleration in its oil consumption. ( Dallas Federal Reserve)
According to well known academic energy economists in China , the 14 largest oil fields in the world, which together account for a fifth of global output, are all showing declining production. These old fields, where the cost of producing each extra barrel of oil is just a few dollars, are having to be replaced by new more expensive fields. (MSN Money)
With China 's crude demand expanding at 11 per cent a year the country will soon replace the US as the world's biggest oil importer. The growth of India 's oil demand isn't far behind. These two nations account for a third of humanity. And as economic development continues, the energy needs of their factories - along with those in Brazil , Mexico and other populous emerging markets – will escalate. As these countries get richer the number of cars in the world, now around 625 million, is set to double in less than 20 years. The impact of that on global oil demand will be immense - around 70 per cent of current crude output is used to fuel autos. (Telegraph)
• In 2008 China , India , Russia and the Middle East for the first time will consume more crude oil than the U.S. , burning 20.67 million barrels a day this year, an increase of 4.4 percent over year earlier levels, according to the International Energy Agency. U.S. demand will contract 2 percent to 20.38 million barrels daily, the IEA forecast. (Bloomberg)

China , the world's second-biggest energy user, will consume 7.89 million barrels of oil a day in 2008. China 's passenger car sales jumped 22 percent to 6.3 million last year and may rise 16 percent to about 7.3 million this year. India will use 2.9 million barrels of oil a day in 2008, more than is pumped by OPEC member Venezuela . (Bloomberg)
The average person in China consumed less than 20 percent as much energy as the average American in 2005, the latest year data is available, according to U.S. Energy Department. In India , energy use is less than 10 percent of America 's on a per capita basis. The 2.45 billion people in China and India combined used only half as much crude as 300 million Americans last year. (Bloomberg)
Russia 's economy is expected to grow 7.1 percent this year and Middle Eastern economic growth will probably accelerate to 6.1 percent this year from 5.8 percent in 2007, according to the International Monetary Fund. Oil demand and economic growth are strongly correlated. Oil demand in the Middle Eastern region will surge 5.8 percent to 6.97 million barrels a day this year, according to the IEA.
World oil production has stagnated at about 85-million barrels per day over the last two years, with growing demand met by increases in natural gas liquids. Growing demand in China , India , Russia and the Middle East will more than offset declines in the industrialized world. “Millions of new households will suddenly have straws to start sucking at the world's rapidly shrinking oil reserves,” according to an energy analyst. (Globe & Mail)
The future supply of Russian oil is threatened by a likely decline in production levels one of the country's top oil executives warned last month. Lukoil's Leonid Fedun said $1 trillion would have to be spent on developing new reserves if current output levels were to be maintained. Recent figures show Russian output fell 1% in the first quarter of 2008, and several experts expect the production decline to accelerate. (BBC News)
Crude oil prices continued rising last month, with the benchmark West Texas Intermediate (WTI) crude oil setting new records last month. Real oil prices also hit all time highs. (Dallas Federal Reserve Bank)
U.S. natural gas prices are poised to head higher over the long term as commercial demand increases according to a report issued by the Federal Reserve Bank of Dallas last month . The report noted that domestic natural gas prices are depressed compared with the fast-rising prices commanded on the international market for liquefied natural gas, selling for between $18 and $19 per million cubic feet, about twice the domestic price.
"Much higher natural gas prices seem likely even though U.S. producers are thought to be sitting on sizable supplies of undeveloped resources," the bank said. "A recovery in U.S. manufacturing should sharply boost natural gas demand. Once LNG imports become the marginal source of U.S. supply, much higher international natural gas prices should prevail."

• The growth in global oil demand over the last five years has dwarfed the increases in global oil supplies from non-OPEC nations (see chart at right). As demand continues to rocket upward the incremental excess global productive capacity continues to shrink, which helps support higher prices. (Financial Times)

• Production associated with the damaged Independence Hub in the offshore Gulf of Mexico remains shut-in at month end. The facility has been shut-in for three weeks while repairs are completed, a process expected to be finished in the first half of May. Until that time about 900 million cubic feet (MMcf) per day of supplies will not be available to the market. (Cattle Network)

• Liquefied natural gas (LNG) imports to the U.S. continue at a level well below last year's volumes. An average of 0.9 billion cubic feet (Bcf) per day was imported during April, less than one-third of the 3.2 Bcf per day imported during April 2007. Although deliveries are expected to increase in the month of May, there has been a sharp reduction in import levels so far in 2008. LNG deliveries totaled about 116 Bcf through April 2008, while volumes reached about 283 Bcf during the comparable period last year. LNG cargoes are heading to Europe and Asia, where buyers continue to purchase LNG at much higher prices than those that have prevailed in U.S. markets. (Cattle Network)

Hurricane forecasters from Colorado State University last month raised the number of storms they expect this year to 15, including eight hurricanes, half of them major. The Gulf Coast , home to dozens of oil and gas fields and a large share of the U.S. refining capacity, has about a 45 percent chance of being hit by at least one major hurricane. That compares with a historical average of about 30 percent. (Bloomberg)
AccuWeather.com Hurricane Center meteorologists also released a preliminary hurricane season forecast for 2008 last month. They believe the waning La Niña conditions and a continued warm water cycle in the Atlantic Basin will be the two defining factors influencing the 2008 hurricane season, causing the number of storms to be slightly above average. More importantly, these factors will increase the chance for landfalling storms in the United States

The third forecast released last month comes from the British group Tropical Storm Risk. They forecast percentages of storms, but come up with something similar: 14.8 named storms, 7.8 hurricanes, and 3.5 intense ones. They also see an enhanced U.S. landfall risk.

Regardless of how accurate or inaccurate these forecasts prove to be the fact is we have seen eight Category 5 Atlantic hurricanes in the past 5 years. And last year, two Category 5 hurricanes -- the most intense on a five-tier scale -- made landfall in the Atlantic Basin for the first time ever. The frequency of intense storms is off the charts statistically when compared to historical records.

An anomaly perhaps, but should a Category 5 storm strike in an area populated with a high density of oil refineries, oil and gas fields, or for that matter people, the outcome could be catastrophic.

By Joseph Dancy,
Adjunct Professor: Oil & Gas Law, SMU School of Law
Advisor, LSGI Market Letter
Click to expand...

Here, in simple terms, rising global demand for oil while supplies are not increasing. That is a key to higher prices.
 
DriftWood said:
Here is another post i wrote some weeks ago.. saying the same thing in a slightly different way.

Actually the speculators are innocent scapegoats. Speculation in consumable commodities (as in most things except gold) does not increase the price of the commodity.
Click to expand...

I understand that speculators play an important role, but what about considering things from the perspective of the producer of the commodity. In the case of oil you have a cartel, and some potentially rogue producers (Iran, Venezuela), as well as potential developments of alternate energy. If the cartel is concerned that they might weaken in the future wouldn't it be in there interests to limit supply now, generating a trend of prices going up to drive up the prices of the futures?

Could it all be a plot to screw the speculators? Or is the connection between the rate of current prices and futures contracts erroneous.
 
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