Soros sounds alarm on oil ‘bubble’

[flashl]

Source: Financial Times

Billionaire investor George Soros is to tell US lawmakers on Tuesday that “a bubble in the making” is under way in oil and other commodities and that commodity indices are not a legitimate asset class for institutional investors.

He is expected to tell a congressional committee that rising oil prices are the result of a number of fundamental changes and factors in the market, but that the relatively recent ability of investment institutions to invest in the futures market through index funds is exaggerating price rises and creating an oil market bubble.

“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance which led to the stock market crash of 1987,” Mr Soros will tell the Senate commerce committee, according to a draft text seen by the Financial Times.

“In both cases, the institutions are piling in on one side of the market and they have sufficient weight to unbalance it. If the trend were reversed and the institutions as a group headed for the exit as they did in 1987 there would be a crash.”

Financial Times

Read more: http://www.ft.com/cms/s/0/5dbd0ffe-30ef-11dd-bc93-000077b07658.html?nclick_check=1

[midnight]

1. "exaggerating price rises and creating an oil market bubble"

I know nothing about investments, or oil, but I did know we were being gouged. I tried to find a youtube interview with gregg palast. He talks about how Hillary asked that the oil reserves be release to ease the ecomomic chaos in this country.

[sam sarrha]

2. food commodities have been deregulated by the Bu$hitCo Crime Family.. another bubble

[Blue Gardener]

3. So what happens to prices when the bubble bursts?

I don't want to register to read the rest of the article.

[flashl]

4. Registration is not required to read full article. IMHO, subcrime is a good example. nt

[crikkett]

15. You start taking the bus, that's what happens.

[fascisthunter]

17. or ride a bike if the distance allows

[fasttense]

5. I've always believed we were experiencing an oil bubble

Ever since I've read Ravi Batra's book, "The New Golden Age: The Coming Revolution against Political Corruption and Economic Chaos", I've been convinced it was a bubble. The five major oil monopolies provide 60% of our oil while OPEC only provides about 30% of our oil. I believe it is an ENRON style price manipulation with the blanket approval and assistance of the bushes.

For those of you who want to know what the economy will be like in the future here's a link to Batra's book, http://www.amazon.com/New-Golden-Age-Revolution-Corruption/dp/1403975795/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1212491097&sr=1-1

[flashl]

6. In a twisted sense, its taxpayer subsidized.

Energy Subsidy

[NJCher]

9. thanks for that, fasttense

I'd been putting this together in my own head for awhile and had been searching for the thinker who was working on this issue.

Boy, the things a person finds on DU!

(note to self: get donation check sent in!)



Cher

[Jackpine Radical]

14. Yeah, me too. I just one-clicked it on Amazon.

I swear, DU & Amazon account for about 95% of my time online. It's so bad that my wife & I both have Prime accounts that give us "free" (after we pay for the Prime account) two-day shipping. I'll have that book by Thursday. Amazon is gonna bankrupt us.

[Barrett808]

19. To understand why high fuel prices are driven by fundamentals, not speculation:

Peak Oil Overview - March 2008
http://www.theoildrum.com/node/4041

[profgoose]

21. here's another one, a little more in depth...

I would also recommend this piece at TOD on the same topic:

Why oil costs over $120 per barrel

http://www.theoildrum.com/node/4007

With oil reaching $135 / barrel, Oil Drum readership exceeding 30,000 unique visitors per day and many wild stories circulating in the MSM as to why oil prices are so high this post strives to explain why oil prices are rising exponentially:

• Supply and demand
• Decline of older fields
• Declining net energy and energy density
• New mega-projects
• OPEC spare capacity
• Peak exports

thx for the link to TOD, Barrett!

[Barrett808]

30. Hey Prof. Goose, I visit TOD daily.

Thanks for the great posts over there!

:hi:

[fascisthunter]

16. By Doing this Oil will Be Reconsidered by the World around

[crikkett]

28. You got me to click to the book's page. From a review by Publisher's Weekly

Though the analysis is keen and provocative and the conclusions unorthodox as ever, his specific economic predictions aren't likely to be any better than those in his 11 previous books. Though he admits that "three or four" of his previous predictions "have been wrong," and "the cycle of depression has misfired," he gives no specifics. His examples of successful predictions sidestep his previous books, citing anecdotes from unrecorded private conversations. Some readers might wish Batra would stick to analysis and exposition, at which he excels, and leave off the name-calling and the wild predictions that mar this effort.

[izquierdista]

7. Excess wealth

Soros is exactly right, and oil will be back down to its equilibrium price in a while, maybe by the end of the summer. This is one of the problems of an unregulated capitalist boom-and-bust economy. Republicans LOVE the boom part, so they go around gutting regulation and any sort of dampers on the market and then when the inevitable bust happens, they are the ones crying the loudest. It takes someone like FDR to save capitalism from itself, and then those that enjoy most of the benefits of that capitalism, the rich, call him a traitor to his class.

If you step back a step though, the bigger problem is what to do with excess wealth. When humans are not engaged in war, they can be enormously productive, raising enormous amounts of food through agriculture versus gathering of what grows wild; the building of structures and roads and shipping useful products from where they are in excess to where they are needed. It is estimated that the adults in a primitive hunter gatherer tribe labor about 15 hours a week to keep themselves going. Modern man labors 40 hours a week with much more sophisticated tools. Whatever does he do with all the excess wealth he is creating??

Some of it is public wealth -- highways, bridges, stadiums, waterworks, etc., but most of this wealth gets scooped up by a small number of greedy people, "the rich", and it goes into making ostentatious displays of how much better they are than the other 95%. It sits in pleasure boat harbors, where yachts go out a couple of times in the summer; on the walls of art galleries and private homes; in finely maintained estates where there are 3 bathrooms per inhabitant. As Huey Long once asked, "how much do you need, Mr. Rockefeller, until you say 'enough'?"

Were the government to direct more of the excess wealth into the public sector, there would be no busts like have occurred with the NASDAQ, home prices, and soon oil, because there would be no booms in the first place. Instead, there would be a managed division of all the excess wealth that a productive society creates. There would be extensive mass transit, which would obviate the need of pouring private wealth into personal vehicles. There would be universal low cost health care, which would obviate the need to have private hospitals with wings named after generous donors. There would be low cost higher education, without scholarships, stadiums and auditoriums named for the richest alumni benefactors.

But for this to occur, the rich must be tamed and re-educated. They must be taught that there is a limit to the number of yachts, airplanes, classic cars, and vacation homes that one "needs". They must instead be taught something that they missed out on in kindergarten -- the value of sharing. Their greed must be shackled so that they cannot spend a lifetime accumulating private wealth, only to bequeath it to a foundation upon their death.

[Virginia Dare]

11. Barbara Tuchman addresses this well in "A Distant Mirror"..

which I'm reading right now.

She states that after the black death plague, due to a depleted population, there was more wealth circulating, but less production of commodities.

As a result, even in a time of food shortages and deprivation, the rich set about accumulating as much of that additional available wealth as they could.

It was dichotomous time of vulgar display of vast riches and abject poverty.

[Doctor_J]

8. The oil barons are like burglars who hear the residents of the home they're looting

coming in the driveway. The election forecasts for November make it clear that their days of robbing the working people are numbered, and they're grabbing all that will fit in their sacks before the cops (Dems) come.

[NJCher]

10. if that's the case

It will be another situation where the republicans nail their toes to the floor, as they are perpetually doing. Once the public sees oil prices come down when a Democrat is in power, it will further decrease any republican support they have left.

Recently I talked to a long-time republican from the midwest and we talked about gas prices. This person had abandoned the republican party--the gas prices were the last straw. Being a racist, I doubt this person will vote for Obama but I think they will stay away from the polls.



Cher

[peacetalksforall]

13. I wish Dems were the ones to right things (not be cops, but lead).

Regrettably, they are equally at fault.

The measure for me is their support for war.

A killing mind set plus being bought by lobbyists means trouble and suffering for some.

Some Dems aren't so good at peace nor distribution.

We can't keep deluding ourselves about that.

We can't keep voting them in.

[aquart]

24. Wake up.

While you go searching for suitable saints to elect, there's a lot of hard, slogging work being done by these sinners, and a whole lot more still to be done.

So get real and stop wringing your hands over utopia.

[earthside]

12. But a small bubble.

There is probably excessive speculation right now in the price of petroleum.

However, shortages and demand are at the root of the rising cost of oil.

Note the information in this DU thread: http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=115x152197

Don't be fooled into believing that all of this run-up in the price of gasoline is just a grand conspiracy by energy company CEOs and commodities speculators -- there are serious declines in petroleum production underlying all of the current stresses in the oil markets.

So, my prediction is that at some point the price per barrel may decline some as speculators take profit and the price finally makes some people uses less creating a temporary adequate supply. But the price drop will be relatively small and will then start back up again.

We're living in the plateau of 'peak oil' ... get used to it whether you like it or not.

[rustydad]

18. You are dead on right

Folks the world extraction of crude oil has been essentially flat for three years at 85 million barrels a day. Meanwhile China, India, and the oil exporting Middle East, now that it is getting far richer from higher oil prices, are all using more oil. Speculators are aiming at higher prices in the future because they are finally convinced that Peak Oil is real and is here now. The higher prices will eventually cause the poorer of us humans to do without, demand destruction by price. The other factor is the falling value of the US dollar. Oil priced in Euros has gone up too but only about half of the dollar increase. Oil producers aren't stupid. If the US dollar is devalued against other currencies because our Fed prints more and more dollars, oil exporters must ask for more dollars per barrel. It's econ 101. Bob

[Barrett808]

20. Word. n/t

[David__77]

22. It's not a bubble. It's a fairer valuation.

Oil is important to the global economy. Maybe there's a medical care bubble, or a high-tech goods bubble, a food bubble, etc., but not an oil bubble.

[robertpaulsen]

23. Uh, George, have you been keeping tabs on the IEA's latest assessments?

International Energy Agency admits to 12.5 million barrel per day oil supply shortage

I have retrieved the entire document translated to english by Cappella, a member of the Life After the Oil Crash blog forum. Please read it carefully as it portends significant difficulties for all of us.

"The Sirens Shrill"

The International Energy Agency (IEA) gives alarm: The world could run out of oil faster than expected - the danger of a supply shortage is rising

Hunger for energy vs. energy shortage: While the demand for oil is on the rise, the production is decreasing - shortages, escalating prices and inflation are looming. When talking to energy politician Astrid Schneider, Faith Biro, chief economist of the IEA demands a change in policy from the member countries. His motto: leave oil before it leaves us.

Astrid Schneider:
Mr. Birol, in your "World Energy Outlook" which was published in November 2007 the IEA has warned for the first time that there could be a slump in oil production and escalting prices in the time from now to 2015. The reason you give is that there has been to little investment in oil production.

Fatih Birol:
Indeed. There are three reasons why that is so. The first one is the increasing demand, mostly from China, India and the Middle Eastern countries themselves. These countries are the main reason for the increasing oil consumption. Even if there should be a recession in the USA, this would not slow those countries down much, because India and China have a strong internal economic growth, while high oil prices will help the economy in the Middle East. The demand for oil will therefore remain high.

Schneider:
The second reason ...?

Birol: ... is, that we see a sharp decline in production from the existing oil fields, especially in the North Sea, the USA and many non-OPEC countries. Even here money should be invested, to slow down that decline. The third reason why we expect a risk for overall production is, that we looked at all oil exploration projects around the world: 230 alltogether, in Saudi-Arabia, Venezuela, the North-Sea, everywhere. Even if all those projects which are already funded will be implemented, the overall capacity they can bring for new oil production is too little.

Schneider:
How much is missing?

Birol:
Exactly 12.5 million barrel a day are still missing, about 15 % of the global oil demand (the current global oil consumption is 84 million barrel a day, note from the editor). This gap means that we could face a supply shortage and very high prices during the next years.

more...

http://oilsandstruth.org/international-energy-agency-admits-125-million-barrel-day-oil-supply-shortage

Some bubble. More like a grenade that detonates when the global economy implodes.

[leveymg]

25. Domestically-produced oil should be regulated as a public utility.

Price speculation this extreme in something as essential as crude oil is socially unacceptable. I agree with Soros, this threatens all of our security.

[Divine Discontent]

26. this should be on the evening news.... was it??? doubt it!

KICKETY KICK!


New Obama Items Weekly!
www.cafepress.com/warisprofitable

[whirlygigspin]

27. video link Soros at the LSE last week

http://www.lse.ac.uk/collections/LSEPublicLecturesAndEvents/live/20080311t1554z001.htm

[melm00se]

29. if it is a bubble

when it pops, if it follows similar commodity/equity bubble pops, the drop will be very dramatic:

- Silver popped and dropped from $21-22 to $7-8. (~75% drop)
- The tech bubble popped and the NASDAQ dropped from 5000+ to $1300 or so (~75% drop)
- Gold popped and dropped from the high $600/oz mark to ~$300/oz (~50% drop)
- Housing bubble popped and in extreme markets the drop is underway: LA, Las Vegas, San Diego, San Francisco are all on their way to those numbers.

When it does pop, the money will flow from there to the next "bubble" and the cycle will continue.

[AntiFascist]

31. Watch gas prices drop before November...

and Bush take credit for it.

[Name removed]

32. Deleted message

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