Tuesday, June 10, 2008

Why the price of gas will go down before it goes back up.

After the speculative high-tech bubble burst 2000ish, the housing speculative bubble was born, and has now burst. Now oil and commodity prices sky high! Coincidence, or just the next bubble?

I found this on the LA Times Blog. A succient explanation.

RIYADH, Saudi Arabia (AP) - Saudi Arabia says it will call for a meeting of oil producing countries and consumers to discuss soaring oil prices and work to prevent unjustified rise in prices.

Information and Culture Minister Iyad Madani says the kingdom will work with OPEC to "guarantee the availability of oil supplies now and in the future."

In a statement following the weekly Cabinet meeting, Monday, the minister said Saudi Arabia will also work to control "unwarranted and unnatural" price hikes.

He said that the current price of oil is unjustified."

Did you get that last line? As I've said before, this is the end result of the Fed's 180 day loans to "investment banks" outside their normal lending loop. Now we have the major Wall St' investment houses using loans funded by taxpayer dollars inflating yet another speculative bubble based on their own predictions.

It's hard to say what frustrates me more; the blatant market manipulation or the sublime stupidity of the herd of "investors" who believe it. Either way this last round of unmitigated greed/insanity will likely be the straw that finally breaks the economy's back.

Posted by: Michael Snyder | June 09, 2008 at 10:09 AM


Steve said...

Good point. I actually was wondering about this before too. Going back even longer, there was the S&L bubble, then later the tech boom, then the housing. I was wondering what the next one is. I agree that oil is over speculated, but I can't decide on how much. Plus, at least with oil, unlike technology and loans, there IS a finite source of it and measurable demand. In other words, it doesn't just exist on paper like the last booms.

The speculation won't end, just like the others, until it has a reason to though. Something big has to happen so people lose money and suddenly the risk is greater than the reward. For instance, ARM loans still exist and get issued EVERY day. The only way to get the speculation out of the oil market is to make an oil investment look less inviting compared to another choice. I think an obvious solution would be alternative energy technologies. If Congress and the world actually acted on finding alternatives, people would send their investments into that area.

The only other way is if OPEC suddenly pumps lots of oil onto the market. Unfortunately, the US can't process any more oil into gas. We are at 100% compacity, so more oil doesn't equal more gas in the US. Plus, I don't think it has quite reached the point where it is the OPEC's interest to react to the high price. If prices hit $200 a barrel, that will be the tipping point for them.

djinn said...

Your comment was very interesting, in response, I did some research, embodied in my Oil-bubble post. Where will the next bubble be? Got me. Prob. a different energy resource, as we are running out. Oil is headed up. Forever. Just not quite as fast as current trends indicate.