Economist John Harvey says it’s not supply and demand:
Today’s spike is being driven by speculation, just as it was up to the financial crisis. Don’t take my word for it. Consider the data… Today, not only have known reserves risen substantially, but we are only just emerging from the worst recession since the Great Depression–hardly a boom period…
imagine that some portion of the trillions of speculative dollars created by financialization made its way into the oil futures market, looking for a quick buck. It seems like a logical thing to do: we all need oil and the prices are likely to go up, right? And note that these don’t have to be bad people. They are the ones in charge of your investment portfolios and retirement funds. They are paid by you to search for higher returns. But, what happens when they venture out of stocks and real estate and start buying oil futures (this was, incidentally, encouraged by the deregulation of the commodities market in 2000–note the increase in volatility of gas prices after that)? It’s simple: the increase in demand causes futures prices rise. And as futures prices rise, those pumping oil out of the ground today decide to save it for tomorrow since “the market” says that price will be higher then.
Harvey disregards the recent devaluation of the dollar as another input, but it’s a well-argued and informative post nonetheless.
Source:
“Why you are paying so much for gas” John Harvey, Forbes.com, 4/26/11
http://blogs.forbes.com/johntharvey/2011/04/26/why-you-are-paying-so-much-for-gas/
