Quote:
Originally Posted by DamageX
So what happened when financing dried up back in 2008-2009? How come oil went from $150/barrel to $38/barrel? The world demand never changed, only the supply of cheap money?
Since you seem to have some grasp on the subject I'm interested in your answer.
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The world demand did change -- drastically.
The role of "speculators" in commodity bubbles is vastly overrated by the general public, for two reasons.
First, speculators are trading cash-settled futures contracts, and never take possession of the actual goods they're trading, and in many cases they can't. If you buy a futures contract for a million barrels of oil come October, you will have to sell that contract to someone else or else you're going to have a oil tanker come and park on your lawn (figuratively speaking). While they can to some extent adjust the price, they can't adjust the level of supply, precisely because they lack the storage capacity to hold goods off the market.
Second, for every futures contract that is bought, another is sold. Options and futures contracts are what mathematicians call a zero-sum game, meaning that the wins and losses balance out among the players. When one oil speculator makes a killing buying a contract, he does so at the expense of the other speculator who sold it to him.
Oil is going up because as was stated earlier, there is more demand chasing the resource. There are emerging economies like China / India with large populations that want what the west has and that takes oil. Oil is in everything. Same with Corn. Agricultural commodities have also been hit by climatic and natural disasters, so supply gets hit when that happens.
Yes, the Dollar is down and yes weakening currencies play a role, but it is not the main driver of price (not at this point anyway). If we experience uncontrolled inflation or hyperinflation as some predict, then sure. But that is not what is happening NOW and several markets indicate that the world doesn't really expect that in regards to the US$ anytime soon.
And for the 10th time, the US$ index is trading at 73.60 just barely below it's low of 2008, yet Oil is not at $140 it is at currently at $98.70. This should tell you that the US$ is not the driving force, but rather that post crisis demand is up and supply is not sufficient to the extent that the market believes it should be cheaper.