I've been reading that Oil (and gasoline) prices are high not due to low inventories or supply, but due to speculation. I am not sure I fully understand this. Can you explain this to me? And how can this be corrected?
by 
Cowboy-Matter of Fact
ANSWERS: 2
-
Supplies have been slowed since the Iraq "war", and OPEC has also raised the price per/bbl. Also, the damaged U.S. refineries in the Gulf States from Katrina have not become fully operational, yet. Many causes. Much could be remedied that has not been and I do blame the oil companies for much of it. They have been dragging their heals. And our present admin. has not kicked as much butt as it could and should have. Conflicting interest is not out of the question here.
-
It is only partially true that high oil prices are caused by speculation. That is because speculators believe that there are going to be shortages and buy in advance, which pushes up prices before the shortage actually occurs. But if the shortage actually does occur, the speculators predictions will be fulfilled - and they will make a big profit. There is no actual shortage at the moment, but supply and demand are very closely balanced - and there are no more oil taps to turn on to increase supply if demand falls, or to replace part of the normal supply if part of it gets cut off. Normally the Saudis keep about 1/3 of their capacity idle so that they can turn it on if speculators start betting on a shortage, keep the price down, and stop the speculators making money. The speculators know this, so don'#t bet. But now all the taps are full on. There is no spare capacity, so that if one serious disaster happens, there will be a shortage and no-one can do anything about it. To solve it, either cut demand, increase supply, or get stable trustworthy governments in a number of oil producers (Iraq, Iran, Russia, Venezuela...)
RELATED QUESTIONS
Copyright 2023, Wired Ivy, LLC