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What Caused High Oil Prices?

The experts seem confused. Various reasons have been attributed to the recent record-breaking oil price. It appears to be spiralling upwards, but no consensus is coming from the ‘gurus’.

Some suspect the rise is due to unstable suppliers, like Nigeria and Venezuela. OPEC is the usual Western scapegoat, but they appear equally confused, albeit quite happy over the situation as they keep hearing the ‘kachings’ from their coffers.

What might be more unsettling than the upwardly spiralling oil price is that the people in the industry seem clueless. Well, not clueless as in lack of clues, but clueless as to which clue to follow.

If it is the old standard economic fundamentals like supply and demand, then there is serious cause for concern. Can it really be true, that the oil industry, economic think tanks and financial institutions did not see an increased need for oil in China and India?

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Could they not have an intern sit down and do a bit of basic research on China? Then there is another country with quite a significant population. It is called India. Maybe some of the financial experts, for some weird reason, consider India to a third world country. India has moved into the British car market and now own Daimler, Jaguar, Rover, and Land Rover. These are now Indian cars. India is taking over the Empire.

The sabre rattling between the United States and Iran should not be the cause of unexpected oil price rises. Is a war with Iran really viable outside of Neocon closed meetings. Do Neocons have any real influence in the United States at the moment, enough to start a new war? With the situation in Iraq, a war with Iran is highly unlikely.

Maybe the answer lies in the Mickey Mouse economy that has grown over the last decade or so. Derivative trading and hedge funds are a Las Vegas virtual money game, which finally someone in the real world has to cover for.

In the long term it is, to paraphrase Bill Clinton, ‘It’s the fundamentals, stupid.’ However the stupid thing is that with the above-mentioned Mickey Mouse investors’ roulette, the fundamentals tend to be hidden. If the fundamentals are hidden then the hyped up traders who live in a ADHD cloud and ‘have’ to be rolling all the time, must start relying on emotion and gut feeling to be one up on the next guy.

As long as the traders do not know what is driving the price spiral upwards they will believe this is the actual value of oil. In the mean time, back at the ranch, us folks in the real world have to cover the costs of the Mickey Mouse economy.

There is plenty of oil in The United States and Canada. More than all the oil resources in the Gulf States. The present oil price makes those oil shale and oil sand deposits viable. In the end it appears the high oil price is irrational move, but there are many benefiting from it.

14th July, 2008


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