“60 Minutes” Gets It Right

You can find the “60 Minutes” clip on oil speculation here on the Accidental Hunt Brothers website.  Given the constraints of a 13 minute television piece, I thought the show did a good job outlining the issue.

For me, the most telling point was when Mike Masters reviewed the EIA (“Energy Information Administration,” part of the U.S. Department of Energy) statistics which showed that during the period of the rapid rise in crude prices, the first 2 quarters of 2008, world petroleum supply was actually increasing and demand was decreasing.   The supply/demand environment is wholly inconsistent with the move in the price of oil — the increase in investor speculation during the period is the best explanation for this anomaly.   The EIA stats can be found here (Excel spreadsheet).

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2 Responses to ““60 Minutes” Gets It Right”

  1. Matt P. Says:

    AMEN Brother Jeff!

    My absolute favorite quote was when Congress asked Wall Street banker Lawrence Eagles of J.P. Morgan what role excessive speculation played in rising oil prices, the answer was little to none. “We believe that high energy prices are fundamentally a result of supply and demand,” he said in his testimony.

    Yeah, sure thing, buddy.

    Finally some part of the mainstream media finally sheds some light on this. I’ve been invested in Canadian Energy Trusts (Canroys) for a few years and watch the price of oil closely. And as Jeff points out, the weekly production and consumption numbers are available online at:
    http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html

    A look at the historic consumption numbers shows that the US has pretty much held steady for the last few years, and certainly hasn’t doubled demand (i.e. increased consumption significantly) over the time that oil ran up from $60/bbl to $140/bbl. And I didn’t seen a big increase in driving in India, China or Chad. There was only one rational explanation – guys running up the price based on speculation.

    Now I’m pretty well certain that we have a finite amount of recoverable oil in the world (The Good Lord stopped making dinosaurs a long time ago). But I doubt the market had an epihany concerning the preciousness of petroleum and started to re-price it based on its real value to civilization. I just think some guys (once they bailed out of subprimes) had way too much cash to invest somewhere and decided to ruin the commodities markets like they did with mortgages. (I’m not bitter, really)

    I feel like oil has a real price in the $50-60/bbl range. But as an energy-concerned citizen of the world, with $100/bbl oil, I was excited to see alternate energy production finally become viable. I just hope we can keep it going.

    BTW, if you think unbridled laissez faire is a good thing, consider the price of oil, Madoff, NINA mortgages and credit default swaps. All examples of inadequate regulation of critical financial functions.

  2. mxq Says:

    I saw this stat in the IHT today:

    “During 2008, daily oil prices rose or dropped by 5 percent or more 39 times, versus just four times over the previous two years.”

    could’ve sworn futures markets were supposed to mitigate this sort of nonsense…

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