Is oil skyrocketing on demand, speculation, or devaluation? Posted by Kevin Barber — April 28, 2011 @ 3:02PM
Great question.
First, demand is up. There are a lot of nations using double the oil they did 10 year ago. How much have we contributed to increasing production to match? How much did we contribute to new refineries to keep our own prices low?
Moving on...
Speculation does not affect the spot price - the right now market price... bought by those that need actual barrels of oil delivered. If buyers they did not what sellers had to offer, the price would fall. But buyers hedge themselves against the future price changes using commodity futures. This method of managing ones business expenses is the only way the airlines were able to survive the last few years. It's how farmers deliver a crop each year too.. using futures to hedge against price fluctuations... up or down.
You can do this too. What if you had purchased an equal amount oil futures to account for the amount of money you spent on fuel the last 5 years? Well gas went up, but so did oil futures. If hedged, you'd be paying roughly $2 a gallon net. Does that make you evil? If so, can I be evil with you? Futures anticipate future price, but they're based upon real demand/supply today and anticipated future prices.
Devaluation - what's that?
We need to recognize that the value of money changes regularly. The dollar has lost over 95% of its value in the last 100 years... was that b/c of oil speculators? I think not. But it affects the price of EVERYTHING.
Well you may notice that the price of oil is not the only thing skyrocketing these days. Yep, and my name is captain obvious. Let's consider how the price of oil might go if you take devaluation out of the picture.
Let's compare the price of oil to a strong currency.
In 2006, oil was 60, gold was 600. 1 oz buys 10 barrels
In 2007, 1 ounce of gold bought 8.75 barrels
In 2008, 1 ounce of gold bought 8.75 barrels
In 2009, 1 ounce of gold bought 16 barrels
In 2010, 1 ounce of gold bought 15 barrels
In 2011, 1 ounce of gold buys 14 barrels.
Oil today is CHEAP - if you trade in the right money.
Prices are not rising, the value of printed money is falling.
Soon printed money will stop falling and start failing.
It's already started - that's why real money buys MORE today than it used to... I hope this helps you see the picture.
Maybe together we can find a solution??
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