Jun 16, 2008
The U.S. government continues to claim that the law of supply and demand, and Chinese demand in particular, has been driving up raw materials prices, particularly of oil. No matter how painful is the increase in oil prices, it’s supposedly natural and therefore unstoppable.
Official U.S. government figures show otherwise. Chinese demand for oil increased by 920 million barrels over five years. But, guess what, the demand for “futures contracts” in oil rose just as much.
Buying a futures contract means buying oil at today’s price, but taking delivery later, when the oil is immediately resold! In fact, the speculator never touches the oil – and his only expense is two phone calls, one to buy the oil and the other to sell it. If prices keep going up, it’s an automatic profit. Once the phenomenon is set in motion it feeds on itself.
The amount of money poured into oil futures contracts has gone up fantastically in just a couple of years. According to the U.S. Securities and Exchange Commission, in 2005 the value of futures contracts in oil was less than two trillion dollars. Only two years later, in 2007, it was eight trillion dollars, more than four times as high!
Bush blames China for outrageous oil prices. No! Blame the speculators who continue to drive up the price. Blame Wall Street.