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Old 07-01-2008, 11:30 PM
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White Magic White Magic is offline
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I have read a lot of different stuff from a lot of different economists about the reason gas/oil prices are so crazy... No one has a perfect explanation. Just about all of them agree that speculation is not the problem, but beyond that it's not real clear. This is the most reasonable explanation I have seen yet.

We Can Lower Oil Prices Now - WSJ.com

In a nutshell: Oil producers have examined the data and decided that the demand for oil in the future is going to be outrageous, so they have a choice to make - They can either pump oil out of the ground now, or they can leave it in the ground and pump it out later when the demand is higher and prices will be steeper. If they pump it now, they have to get enough for it that the price + the interest it will earn = the price they can reasonably expect to get in the future. So.... future expectations are driving this mess, not current fundamentals. If that's the case an announcement that we're going to start drilling offshore or in ANWR (or something else that will increase future supply/decrease future demand) could bring down the price of oil immediately.

Sound good?
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