Science Forums 2

[Buffy]

Evil oil companies....sorta. Actually, the thing is that there's the commodities markets in the middle: while the oil companies can do things to manipulate the scarcity (mostly of refined gas: remember that most of the oil in the ground is controlled (at least by proxy) by nationalized producers), the big run up has *everything* to do with speculators looking at the tight production capacity, war, threat of war, crazy dictators, and putting them *together* to think that their petroleum futures will be worth more tomorrow.

Its a lemming mentality though, so its self-reinforcing trend actually helps create a bubble. Its pretty clear that there's still excess capacity, but their betting on Israel invading Syria, or Iran setting off a nuke or Chavez locking up Venezuelan oil, or lots of other relatively remote scenarios, that *could* make them rich. The down side is if there are cracks in this "conventional wisdom" we'll see a crash. I read a quote from the chairman of BP saying the price will come down significantly in the next couple of years, and that disregarding the "risk factors" oil is worth $40/bbl. With the speculators driving up the price of crude, the oil companies can laugh all the way to the bank because they are middlemen, safely taking a cut from everyone.

I do think there's ample evidence that they are manipulating the supply of *refined* gas, through mechanisms that are "legal" (putting refineries in maintenance at exactly the wrong time). In addition, I don't believe there's a "conspiracy" or "collusion", because if you have a small enough number of players in a market, it is to their advantage not to be predatory, and therefore they will simply "do the right thing" (for themselves!) without *any* need for explicit conspiracy....*Any* volitility in the price of crude means fast rises and slow falls of refined petroleum, so the oil companies don't need (indeed don't want *because* it brings demands for windfall profits taxes) crude at $70/bbl...

Crudely efficient markets,
Buffy