Apr 28, 2008
It never fails. As soon as prices on oil and gasoline shoot up, out come the usual politicians, economists and other experts to blame it on shortages caused by surging demand and a growing shortage.
It’s pure bunk. There are no shortages. In the U.S., which consumes more than one-quarter of all the oil and gasoline in the world, there are near record reserves of both oil and gasoline on hand. In fact, demand for oil in the U.S. has been falling since last July. In January and February, this decline was even sharper, close to four%. But oil refiners cut back even more on production – in order to boost profit margins in the face of falling demand.
Neither is there any shortage of oil in the world – despite all the talk about the two biggest countries in the world, China and India, consuming more and more energy. On the contrary, worldwide oil output continues to outstrip demand.
So, what is behind these incredible price increases? In late March, the CEO at ExxonMobil, Rex Tillerson, spelled it out, “The record run in oil prices is related more to speculation... than supply and demand in the market.” He added, “In terms of fundamentals, fear of supply reliability is overblown.”
This is borne out by the numbers. As Business Week (April 1) pointed out, since 2000, the amount of money in one form of speculation, oil futures, increased from nine billion dollars to 250 billion dollars. As the CEO of Royal Dutch Shell told the Washington Post (April 11), this speculation has greatly accelerated, with the new flow of speculative money into oil increasing almost 10-fold since the beginning of the year.
With housing and other credit market bubbles collapsing, the speculators are rushing to make a quick billion by placing their bets on oil and other commodities – blowing up new dangerous speculative bubbles in the financial world, while causing worsening hardship for ordinary people, and especially the poor, in the real world.