Oil Prices

[SHRED]

I understand the 2 major, and often ignored, reasons for rising oil prices are:

1. The devaluation slide of the dollar worldwide.
2. The "futures markets" driven by speculative investing.

Can someone explain, in simple terms, number 2 for me?

Thanks

[JohnyCanuck]

1. Check out this blogger's post (and the comments after)

http://bajan.wordpress.com/2008/05/06/oil-price-futures-speculators-nymex-ice/

[KharmaTrain]

2. Also Budget Defecits and Borrowing

That's what's cheapening the dollar that drives this whole ballgame. As long as this regime squanders billions daily in wars for profit the borrowing goes on and the dollar continues to lose value...thus the price of oil continues to rise.

The futures market is exactly as it says...what investors believe the demand and price will be at a future date. It's gambling as you put down money now on the future delivery price and hope it goes up...thus the "speculation" part. With reports saying that oil could hit $200 a barrel by the end of the summer, buying a future for September delivery could be a good bet...the old adage of buying low and selling high. These future prices tend to draw their own inflation and synergy as the big rollers move their money out of stocks and go after the quick profits in commodities...be it oil or a bushel of corn...or real estate for that matter. They see money to be made and the higher the demand on those future, that drives up the price as well.

As my mother always said...when someone loses money, another person is making it...always follow the money.

[meow2u3]

3. The oil bigshots are gambling with taxpayer money

It's very easy to be a high roller with other people's money....they're betting that the oil supply will either dwindle or production will deliberately be held back to drive up prices.

[QueenOfCalifornia]

4. Shred

I wish I had a clue about how economics works. For me it is like a big, fluffy, sticky glob of cotton candy stuck together inside a bucket of gnarly, yellow, pointy teeth... In other words.... why you askin' me? I feel so stoopid. :shrug:

[El Pinko]

5. The funds that once fueled our real-estate spree are no longer seen as sound investments.

Global investors no longer see dollar-based investments in general as sound, thus commodities look like a good investment because people NEED these things, and as a hedge against inflation and dollar devaluation.

The 3rd reason for the rising prices is that supply is peaking/plateauing as demand continues to rise apace.

[klyon]

6. To me , what makes the most sense is that

the amount of oil that is being pumped today is pretty much maxed out. So tomorrow since more people will want to buy oil, tomorrow's price must go up. If oil supply is less, say Iran production went off line, then the price would go up more. It is all about supply and demand.