Jumpy oil pricers

Now that the price of oil has been falling, it has become easy to watch what makes the price of oil go back up. Connecting the Dots has concluded excessive caffeine consumption must play a significant roll.

You may have had a short chuckle or rolled your eyes when reading the opening statement, but there is reason to comment on how jittery the people who price oil are. So much of what never happens goes into the oil price formula, it is worth talking about.

Normally prices are based on supply and demand in the present tense. But lately future tense is getting a huge say in the final price. Because of that, things that they think may happen and ultimately never do causes everyone to suffer higher prices that do not meet the reality of the market. With that said, the question of $147.00 per barrel suddenly followed by prices over $100.00 less does raise more than a passing concern.

The price of oil is a significant if not the major player in the status of the global economy. That is particularly so in the United States where much of the culture is based on self independence. The price of oil eats into spending money that feeds the economy.

Back when Saddam Hussein invaded Kuwait, the price of oil went up about $10.00 per barrel for a while and then fell. That was a present tense reality that effected supply. But when a hurricane forms in the Caribbean and wether forecasters say it may (emphasis on the word may) go into the Gulf of Mexico the price of oil jumps between $8.00 and $12.00. While that price is high, it puts an unnecessary drag on the economy that goes directly into the oil companies pockets. That at least makes you think about who supplies the huge amounts of free complementary coffee to the oil pricers.

So now that you have the general picture, the state of the global economy may be worse because of overactive imaginations and too much caffeine. So the questions are how much emphasis should be placed on things that are future tense possibilities? Are the people who are pricing oil falling into a self perpetuating sheep mentality that is hurting the economy by allowing imagination to be too big a factor? Are they too inexperienced and just covering their ass by pricing high? And the biggest question is are they being manipulated by the oil companies to price high and hide it in plain sight by making it seem the norm?

Connecting the Dots does not know, but the questions are valid seeing that the price of oil has come down so much to be roughly 30% of the high price. Has the demand fallen off by 70% in just a few months? According to the United States they entered a recession in December 2007. Back then the price of oil was in the $90.00 something price range and still going up. That upward trend would continue for at least 7 more months to peek in July of 2008. Short translation the demand was already falling at least 7 months prior to the July 2008 peek prices.

Connecting the Dots thinks an investigation is due, and perhaps some of the 700 billion dollars the US congress is forking over should come from the oil companies if price fixing is found to be a reality. Certainly the oil supply is coming to an end, but are the high prices justified or are they premature.

One Response to Jumpy oil pricers

  1. Mike Hunt says:

    We are past peak production of oil. One characteristic of flat to declining production is massive price spikes, up and down, that points to an instability in pricing. One other thing to expect is shortages- why should exporting countries sell oil at a low price?

    The lowering of the price comes from hedge funds and institutions liquidating their positions, including oil contracts. Also there is a recession in the US and many other countries, so the perception is that demand for oil is decreasing. This will change quite rapidly in the future. Be careful that you don’t get whiplash!