Oil Prices: Up, Up and Away
Crude oil futures surged to $108.21 a barrel today, the highest since trading began in 1983. Meanwhile, the S&P 500 and Dow averages, gold, platinum and other metals all dropped. Call it speculation, but with surging demand in China, investors currently view rising oil futures as a safer bet than anything else on Wall Street these days. "The grab for hard assets is on due to the lack of confidence in the rest of the markets at the moment." said John Kilduff, senior VP of energy at MF Global Ltd. in New York. Houston investment banker Matt Simmons sees prices heading to $120, "in the short term." Simmons, also known for Twilight in the Desert— his inductive analysis of Saudi oil fields– says, "I'm one of the few people who's not surprised to see crude at $107. I still think it's a bargain." Still, others worry about a ceiling. "The perception in the financial community is that the oil market is the one safe harbor," said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts. "The speculation that's moving oil higher will eventually undercut some of the safety they seek. As prices rise, the economy will weaken and eventually hit demand." Gas prices? Not so much.
First, it was asserted in the article I linked. Second, I wonder exactly what is meant by disposable income. If disposable income = discretionary spending, then obviously some people are dropping a lot more cash at places like Starbucks than they did buying coffee in 1980. That would seem to indicate elasticity, except for the people basing their business on that discretionary spending.
"...investors currently view rising oil futures as a safer bet than anything else on Wall Street these days." There is all the proof you need that oil is not running out, nor has it "peaked." Those people are not going to lose their money. When they start throwing cash at battery tech and bio-fuel stocks, I will believe we're getting low on the black stuff. Now if someone could line up those stupid jerks single-file and have Jackie Chan kick each one in the stomach for artificially inflating gas prices, I'd be obliged.
Steve_K: non sequitur. The fact that the Street is confident and heavily invested in oil futures indicates that they believe prices will continue to rise. Whether they admit it or not, they believe that demand will continue to increase in the face of stagnant supply. I read that as a tacit admission that oil production is at or near peak. And they aren't going to lose their money. It will be a long time before oil is not a profitable bet.
Asia Times has an article today on the matter. It's worth a read: "Bad oil news here to stay" http://www.atimes.com/atimes/Global_Economy/JC13Dj03.html