At a business conference in Sydney, Australia, Steve Forbes suggested that President Bush sell the US oil reserves and warned that the price of oil represents a speculative bubble.
According to Radio Australia:
FORBES: One way to bring the price of oil down would be to stop buying for strategic petroleum reserve, which has over 700 million barrels in it already. The speculators know now that no matter what happens to the price of oil, Uncle Sam is there buying almost everyday. Stop the buying, in fact throw some of that oil on the open market or that boy, throw it in turmoil and send the price down.
Forbes went on to point to the Fed’s role in creating this environment adding the price of oil to Greenspan’s bubble portfolio.
FORBES: Part of it is supply and demand, yes India and China are buying more of the stuff, as the global economy expands more energy will be consumed. But if you look at the price of oil three years ago, it was 20-25 dollars a barrel. Supply and demand might have shot it up to 30-35 dollars a barrel. The rest of it is inflation. Our central bank, the Federal Reserve had been creating too much money. I think they’re beginning to pull back from that and then the rest of it is sheer bubble speculation. I’ll be blunt, there’s hardly a hedge fund in North America that hasn’t speculated in oil futures.
Forbes then discussed his thoughts on the possible future price of oil.
FORBES: I think in 12 months, your going to see oil down to 35-40 dollars US a barrel. That is pure speculation, it is a huge bubble. I don’t know what’s going to pop it, but eventually it will pop. You cannot go against supply and demand. You cannot go against the fundamentals for ever and I don’t think it’s going to go to 100 dollars U-S and if it does, the crash is going to even be more spectacular. It’ll make the hi-tech bubble look like a picnic. This thing is not going to last.
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They are hyping oil investments to Mom and Pop investors on my local radio station right now, which is probably a sign of a bubble that’s about to burst.
As for the strategic oil reserve: you would think that Adam Smith had smashed this kind of brain-dead policy for all time with this:
Though from excess of avarice, in the same manner, the inland corn merchant should sometimes raise the price of his corn somewhat higher than the scarcity of the season requires, yet all the inconveniences which the people can suffer from this conduct, which effectually secures them from a famine in the end of the season, are inconsiderable in comparison of what they might have been exposed to by a more liberal way of dealing in the beginning of it.
if the oil price is to test the north american consumers’ tolerance, and force them to save energy now, the crude price is still too low. $120/b will make low income class saving, $200/b will make average people saving, $250/b will make middle class saving, $800/b will make up-middle people saving, $8,000/b will make CEO of small company saving, $0.4 million/b will make CEO of big company saving, $0.1 billion/b will make Bill Gates saving
Late Wednesday, Gov. Sonny Perdue declared a state of emergency and threatened to impose heavy fines on gasoline retailers who overcharge Georgia drivers. There is “credible evidence” of price-gouging, he said.
“When you prey upon the fears and the paranoia, it is akin to looting, and it is abominable,” Perdue said at a hastily called news conference. “I’m frankly embarrassed for our state and some of our businesses that we have to do this.”
http://www.ajc.com/news/content/news/breaking/katrina/01gas.html
do what? remove uneasiness by maximizing profits?
http://mises.org/TRTS.htm
There may be a short term bubble burst with oil prices soon after the Katrina disaster is over. But speaking of supply and demand…..we know that demand is going up….a lot. The demands from China came unexpectedly. In fact, a socialist China without a market driven economy can want all kinds of different amounts. So who cares about a burst one month from now. The demand is increasing at an unknown rate. With this unknown rate, supply will be hard to match demand. There will then always be a shortage or a surplus in the oil supply. China is big enough to bring its shortage and surplus situations on the rest of the world. At least that’s what I think….comments anyone?
They are hyping oil investments to Mom and Pop investors on my local radio station right now, which is probably a sign of a bubble that’s about to burst.
Not necessarily. In the 1920′s opportunities for the average joe (AJ) to invest in the stock market arose years before the market burst. Right now there is no easy way for AJ to go bullish on oil apart from buying oil producers’ shares, which isn’t quite the same thing. NYMEX options are a possibility, but since they happen to be options on futures contracts (i.e. you are betting on the future delivery of a certain quantity of oil at a certain time) they are relatively complex for AJ. These funds are trying to fill in this gap: people will have heard of the rising price of oil by now and they can make a profit simply by buying shares in the fund.
Another problem is that in the good olden days of Jesse Livermore & C it was as easy for AJ to go short on shares (that is, bet on a fall in prices) as it was to go long. Indeed, Livermore was able to short shares in all major US companies years before he was legally allowed to buy himself a beer. In the 1930′s short selling was blamed for the crash and the ensuing depression, and as a result it was severely restricted and small investors were prevented from using it. Nowadays they can use options or futures, or contracts for difference, but it’s not as easy as short selling once was. Rather than making the financial system more stable, this has created more instability because it’s much easier to use inflated money to bid prices up than down.
When global economic activity wans, so will the price of oil.
As America’s perhaps greatest natural disaster unfolds, coincidentally and, for the most part – unrelated, as demonstrated by recent equity valuation activity – so unfolds the second of three daily decay fractals that will make up the primary 2005 equivalent of the 1929 drop.
The first decay fractal had a base of 11 days. Wednesday 31 August was the 18th day of a 27 to 28 day second fractal sequence. The ideal expected secondary top of this fractal sequence will range from 1.62 x 11days or 18 days to 2 x 11 days or 22 days.
Smart money is flowing into the ten year notes and thirty year bonds just as the waters are naturally flowing into the low areas through the disrupted dikes. Even as equities rose yesterday there was an uncharacteristic abrupt divergent lowering of the long term US interest rates (as previously predicted) driving TNX sharply down to 40.20. Three month treasuries likewise were driven down but to a lesser extent with IRX at 34.30 on August 31, 2005. The spread of 6.9 is the smallest in over three years. The spread will most likely become temporarily negative within the next few months.
Just like in 1929 it will most likely be the third decay fractal of 27-28 days that will witness the profound drop that will be the equivalent of a very slow moving category 5 hurricane moving across the entire nation without benefit of a dissipating landfall. The civil and social chaos witnessed in New Orleans may well be a representative microcosm of the general unrest that could follow.
Gary Lammert The Economic Fractalist http://www.economicfractalist.com/
Some people think if there is a world wide crash that it will bring us back to the good old days of the 1950′s. I think a world wide crash would blast us back to the city-states of the 1350′s
Let’s hope billwald is right
how this can happend, is March,2006, oil for gas should be much lower,when barrel for oil is 67 dollars, but is other wise. WHY???
Price for oil goes down, but price at the pump is goign up. This not make any sense for me. This is gouging again, and nobody is questioning thoes, who are chitting, for witch, amrican people are paying a big price ,
very big price. Yes, the best thing, is to stop buying gas, but, this not Europe, were public transpotation is great, and people don’t need use ther cars do get anywere. Here , distans, and getting anywere ,is must for having a car ot two, it is no a for fun, is a must!!!
Some people think if there is a world wide crash that it will bring us back to the good old days of the 1950′s. I think a world wide crash would blast us back to the city-states of the 1350′s
Forbes: “I don’t think (price of oil) is going to go to 100 dollars…” (Aug. 2005)
Oil reaches $119 a barrel (April 2008)
Now I know why this genius was never elected.
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