22 is a lot of times
Tim Evans of Citibank as quoted in the airline industry website Stop Oil Speculation Now:
“combined crude oil futures volume…reached a new record…about 22 times the level of global daily demand. With the futures market this much larger than the underlying physical market, we think the potential for a speculative bubble to form is certainly expanded…”
No doubt the fundamentals of supply and demand form a percentage of the reason for current high prices. That is always true in a bubble. However, when the trading of a commodity is 22x the demand for the commodity, speculation would appear to be a significant part of the explanation for prices.
For example, it is hard to read any story emanating from the Middle East today (whether from friend or foe), without thinking that most every financial institution and government around the world are participating in this (so far) risk-free global lottery. Indeed, some appear to be actively gaming the system.
July 12th, 2008 at 7:05 pm
and the amount of pension fund money in commodities is 20 times what was traded just 5 years ago.
these two factors mean that MUCH more money is now chasing the same amount of oil and that’s why the price is up.
the money has no relation to oil’s actual use – only to it’s use as a hedge/investment.
the bubble will burst very soon.
July 13th, 2008 at 6:49 pm
Suppose there is indeed an oil bubble and suppose that a Wall Street institution has participated in manipulating prices upward. Imagine the firestorm when the bubble bursts if that instititution demands a taxpayer bailout on the grounds of being too big to fail.
July 14th, 2008 at 4:10 pm
Finally, Bush has exercised some leadership by revoking the executive order that forbids offshore drilling. A federal law that prohibits drilling remains unrepealed.