Let's say for the sake of argument that half the price of oil is due to speculation

[GliderGuider]

Further, let's assume we get a handle on that, and stop it. As a result the price of oil drops by half, to $70.

What happens to world oil demand (and consumption, if the oil is available) under those circumstances? What happens to the incentive to reduce our consumption, conserve, become more efficient or switch to alternatives? What happens to CO2 output if oil consumption rises as a result?

In our rush to make life easier for Joe Commuter, we could put humanity at a long term disadvantage. It seems to me you could make a pretty good case that the speculators are doing humanity a service.

[asthmaticeog]

1. You're ignoring a lot.

Yeah, cutting down on gas usage is obviously good long-term, but it's not possible for everyone. We simply don't all live close enough to our jobs to do that. And while part of that is due to sprawl, part of that is also due to the limited availability of work, and the need for people to take jobs far from home, with long commutes, in order to work at all. With people's fuel costs tripling and their wages going nowhere, this makes them unable to afford things like food, doctor visit co-pays, their mortgages, etc. You can smugly sit there and rag on "Joe Commuter" all you want, but he goes by many names, one of which is "Working Stiff." Fuel costs need to come down AND consumption has to decrease. Saying that the enormous squeeze being put on people who can ill-afford it is "good" because it has one possible desirable outcome is myopic and cruel.

[crikkett]

6. shock therapy?

The economy ran on whale oil until petroleum became a viable alternative. Unfortunately there doesn't seem to be a viable alternative to petroleum.

There's a case for needing shock therapy wrt oil-dependent lifestyles. For example, we could learn a lot from how Cuba adapted to the oil embargo imposed upon it by America.

Unfortunately the underclass will bear most of the pain during this transition because what's really needed is for the rich to invest in change, and that includes a new way of getting their workforce to and from their jobs. They will not invest in change until it's absolutely necessary for social stability.

[Nihil]

8. Yeah, like *that* is going to happen ...?

> Fuel costs need to come down AND consumption has to decrease.

We can see *exactly* how much effort was put into conservation and controlling
consumption before the cost of fuel started to take off ...
:eyes:

[asthmaticeog]

15. A) Don't fucking roll your eyes at me, as I happen to be right.

B) It was about to happen. The Reagan Revolution derailed it. We can still do it.

Your username speaks volumes.

[Nihil]

22. You deserved it.

> A) Don't fucking roll your eyes at me, as I happen to be right.

Your comment ("Fuel costs need to come down AND consumption has to decrease")
is "right" in the same way that "politicians need to be honest" is "right"
or "people should not commit crimes" is "right". Unfortunately, it is also
in the same ballpark as the above in terms of the chance of it happening
voluntarily (i.e., without the assistance of the oil price crunch) in the
US in the next XX years (i.e., as near to "fucking" zero as exists).

> B) It was about to happen. The Reagan Revolution derailed it.

Carter had some good ideas and an admirable approach to certain things.
He was also "helped" by the oil price issues that had hit by then.
I'm glad that you didn't try to suggest that any significant progress
had been made since then.

> We can still do it.

You *can* do it.
You *may well* do it if the price stays high - hence it has a 'silver lining'.
You *will not* do it if it drops back down again as the greater unwashed
have the attention span of a drunken moth and will merely celebrate the
return of their grossly overconsumptive lifestyle.

I'll "fucking" roll my eyes at you whenever you show such a pathetically
naive and pollyanna-ish optimism in the face of the reality displayed
day in & day out by your compatriots with regard to "conservation and controlling consumption".

> Your username speaks volumes.

That's why I chose it. It saves on typing. :hi:

[asthmaticeog]

28. My pollyanna-ish optimism?

:rofl:

[liberal N proud]

2. Why do we have to drive Joe Commuter into poverty?

Just to reduce oil consumption?

There are better ways, more fuel efficient vehicles, new technology, mass transit or alternative fuels.

Advocate for change but stop pushing for higher prices to drive those changes. Joe Commuter in the soup line does nothing but drive the economy lower.

[IrateCitizen]

38. Because we have two energy outlooks in the US...

They are complacency and panic, in the words of James Schlesinger (Carter's Sec of Energy).

The ONLY way that oil consumption will be reduced here is through pain. Modern America was built on the foundation of cheap, readily available petroleum. The only way it will change is if it is FORCED to do so.

I'm inferring from your post that you're expecting people to act as rational animals. "We" will not, because people often prove themselves to be quite irrational. Especially when concepts accepted as fact for several generations are suddenly challenged.

[polichick]

3. I know someone who works for big oil who says the same thing...

The only way this addicted society will ever wean itself off is if prices stay high ~ over $5 he says.

(This is someone who's all for developing alternative fuels.)

[liberal N proud]

9. Kill the economy just to cut oil consumption?

Makes a lot of sense.

[polichick]

10. That's not the point - the point is that we can't go on like this...

...destroying the planet because we won't let go of our habits. And, unfortunately, people don't seriously conserve or support alternative fuels until they are hurting. That's how short-sighted people are.

[liberal N proud]

13. But it is the result

There are other ways to drive the reduction of OIL other than killing an economy and driving the average person in America into poverty.

[polichick]

16. Oh sure, but not with this administration...

For the moment, speculators are inadvertently pushing us in the right direction.

[liberal N proud]

18. And people are suffering greatly

I know of people who literally have to chose between feeding their kids today or putting fuel in their car to get to work.

If they can't get to work, they can't feed their kids next week.

And there is no mass transit in the area.

The environmentalist and peak oil groups all piggy backed on this speculation frenzy as opportunist and they forgot to look at the impact it is having on everyday lives. All which is dismissed with they will just have to change their lifestyle.


What can the poor do to adjust this change and expect to climb out of poverty? What pray tell me?

[The2ndWheel]

20. The price of universality

As we increase the amount of people who live under the same set of rules, when the circumstances change, fewer and fewer people are able or allowed to change, and they're left with choices like feeding their kids or putting fuel into the car to get to work.

[polichick]

21. We can all VOTE for someone who will deal with the speculation issue AND...

...move away from oil dependence EVEN WHEN prices drop and Americans fall into their same ol' ruts.

As a lifelong environmentalist, I'm not happy that it has taken a crisis like this for people to WAKE UP ~ but I'm also smart enough to see that sometimes we get what we need.

[stevebreeze]

4. should we also thank speculators for the stock and housing bubble?

Just askin.
better to put a very small transaction tax on stocks and futures. This would dampen down speculation on the margins but still allow the markets to work.

[crikkett]

7. good idea - everyone else is taking commissions off transactions

[still_one]

5. Bullshit, the speculatros are NOT doing a humanity service, just like the loan sharks

they could care less about the environment

The fact is that Asia and Europe were and are producing cleaner and more efficient uses of energy, and have been doing so long before oil started to increase

In 1973 nixon actually tried to do something about energy, but because of impeachment looming on the horizon, and congress who was up to their neck in special interests, nothing happened. That was over 35 years ago

In 2000 Toyota and Honda introduced their first Hybrid vehicles into the U.S. They were mocked by the U.S. auto industry, and the bush administration. Demand had been increasing on those vehicles ever since, and it was more than just the price of gasoline why that occurred

People are more conscious of the environmental effects than ever before. You don't even have to argue on the basis of global warming. You can argue on the basis of a know. The fossil fuels create polution which create a major health hazard. There is a reason that azthma has increased dramatically over the last ten years

[polichick]

11. Of course speculators aren't doing humanity a service ON PURPOSE...

But, unlike Europeans, Americans have to be forced to give up their selfish habits for the good of all ~ and high gas prices are forcing them to change their evil ways. Suddenly they're supporting alternative fuels, trying to get rid of those disgusting SUVs, and making fewer trips to the store.

[sshan2525]

12. I AM Joe Commuter...

Or, more precisely, "Steve Commuter" and this shit is killing me. I drive 80 miles a day to and from work. Things were tough before but now I'm faced with about $150 more in expenses per month due to the cost of gas. In addition, I'm hit with rising costs of everthing else and who knows what the increase to my heating bill will be next winter. All this extra money paid for fuel is money that will not be spent elsewhere. I am contributing to the faltering economy. Unfortunately, I have no choice. I would gladly take public transportation if it was available but it is not in my area. I have no choice but to drive. I am lucky to have a job at all in this lousy economy in southern New England. The odds of finding something that pays as well closer to home are slim to none. If the price of fuel drops, I'm not going to drive one mile more or less than I do now. I will, however, stand a somewhat better chance of not falling completely out of the middle class which looks more likely every day under the current circumstances.

[polichick]

17. How about moving the family closer to work? We may do that...

The bottom line is we MUST get out of this oil-gulping habit ~ we've known it since the 1970s and our lack of national vision and resolve has finally caught up with us.

[sshan2525]

29. Won't help us.....

My wife works in Boston & I work near Worcester which are about an hour apart. Currently we live in Rhode Island and even if I could sell my condo, which is doubtful in this economy, I couldn't afford to buy in any centrally located area in Mass. I'm screwed no matter what.

[NNadir]

14. Not really. The external cost of dangerous fossil fuels should be collected

as taxes and the revenue dedicated to the construction of energy infrastructure with lower external costs.

It should not be used to enrich individuals - most of whom are predatory and hardly useful to the human race.

I suggested a program for accomplishing this through the collection and reuse of dangerous fossil fuel waste in a diary here:

The Utility of Light: Getting Real with the Existing Energy Infrastructure.

The ten point proposal is at the bottom of diary, after considerable blather on my part.

I wrote this proposal one year ago before the rapid run up in energy prices.


The tenth point was this:

10. And now for the hard part. Everybody, and I do mean everybody, will need to pay more for energy. A carbon tax will hit everybody who uses carbon. We may wish to represent that the carbon users are big bad jet setting executives flying themselves around on the Concorde or (these days) private corporate jets but this is a dodge. You use carbon. I use carbon. We must face what that carbon costs. This is just a reality. It is our responsibility to do this to show our children, our grandchildren, our great grandchildren, mine, yours, everybody’s, that we were worthy ancestors, worthy of their respect, worthy of their family pride, where the family is the whole human race. Building a sustainable future is a family values issue.

One may argue fine points, whether a carbon tax is regressive, for instance. But we should so overwhelm ourselves in details that we find ourselves unable to act. There are, I'm sure, reasonable means - perhaps not perfect means - of managing these questions. The ideal should not prevent the outstanding.

We must recognize however that the pain of carbon taxes is likely to be short term. Money spent this way is not quite the same as money spent on war, since war builds nothing. The money we pay now will be an investment and we might expect great returns. The expenditure will create jobs and more importantly wealth, the kind of wealth that will allow us to do the good and great things to which we should aspire, to create vision, to create justice, to create opportunity, to build great international parks, to fund the arts, to create a community where science thrives, to live in a world where health is possible, and where humanity and life itself might reasonably prevail.

[kristopher]

19. I think the message got through this time.

We took the oil shocks of the 70s seriously but it faded over time. So there is a good model to predict that $70/barrel cheap oil would just lead us into the same trap.

Or you could speculate that three things are different this time and those things are going to produce an outcome different than the 70s. The first is steadily increasing world demand - everyone knows that we are now in economic competition for a scarce, finite resource. Two is that the alternative technologies are there for personal transportation and they can be developed profitably. Third is climate change; while the right has successfully killed discussion of the topic in US news coverage, a growing number of people are disaffected by the record of failure the leaders of GW denial have brought them and they are growing increasingly more willing to support change in the energy infrastructure. So whether it is energy security, energy price stability, or energy's externalities, there is a perfect window of opportunity for change even at $70 IMO.

[polichick]

23. Yep, yep, yep!

It's sad beyond words that we didn't stay on the path that we started on in the 70s ~ if we don't get it now, our children will pay a price far higher than the one at the pumps.

[GliderGuider]

24. On your three points

1. Increasing demand for a scarce, finite resource is what's driving the price of oil right now. Getting rid of any speculation premium wouldn't affect the underlying fundamentals. If we were able to drop the price 50% by getting rid of the speculators I wonder how long it would take for oil to double back to its present price? A year maybe, like it did last year?

2. Can these saviour technologies be put in place fast enough? What if oil were to go to $400 within 2 years as shown below? Or even $250? How would that impact the rollout of these technologies, or their profitability?



3. When people are faced with the possibility of running out of energy, battling climate change takes a back seat. This happened in Bangladesh when they were discussing natural gas shortages and came under intense pressure to move to coal. Will people still voluntarily cut their consumption when oil is suddenly cheap again? All conceits to the contrary, people are not rational creatures. High fuel prices spurred conservation and efficiency in Europe, for example, not some rational appreciation of the greater good.

Of course much of the discussion on this thread is moot, because the price of oil is not being driven by speculators. See point 1.

[polichick]

26. We have to stop the speculation AND decrease demand.

[Nederland]

25. What happens if oil drops to $70?

I win our bet :)

Not gonna happen though :(

[IrateCitizen]

39. Hi Nederland!

:hi:

[tinrobot]

27. I say we need to keep prices high and profits down.

Oil is an addiction. If prices go down, the addiction will return and our wasteful lifestyles will return.

I'm reading a lot of Joe Commuter stories in this thread about people who drive long distances to work and are otherwise crunched by high prices. I genuinely feel bad for them, because a lot of their hard earned money os going to give $400million bonuses to oil company execs.

The good thing coming out of this is that these people are now demanding mass transit, better fuel economy, alternative fuels, the ability to telecommute or live closer to work. All of these things have been suggested for decades by environmentalists, but they fell on deaf ears. Now that it's finally hitting people's wallets, they're finally demanding alternatives.

I say keep prices high to keep people demanding alternatives. Then take away the oil company profits through taxation of some sort and put the money into creating the alternatives people demand - mass transit, alternative fuels, etc.

[cedric]

30. Time to start planning cities

Over here in the UK and in much of Europe we have increasingly started to move away from the concept of urban sprawl and towards the idea of the compact city. Expanding mass transportation, getting people out of their cars, walking, cycling, using public transport, discouraging greater sprawl. Non of these issues are short term solutions but the problems that we have are now facing have been stated for many years and most politicians and individuals have ignored them, until now when the reality is starting to hit people where it hurts.

[losthills]

31. I agree with Glider that people are not going to change

their habits unless the price of gas remains high long term.

I also agree with the person who said that it makes no sense to wreck our economy to reduce oil consumption.

So where does that leave us? Between "a rock and a hard place."

I think our government needs to do everything possible to get fuel prices down, and then take drastic and serious measures to begin phasing out the internal combustion engine as a means of personal transportation.

The war in Iraq and speculators are the two main culprits creating the current record fuel prices. Deal with those first. Then begin drastic increases in vehicle registration fees for ICE vehicles, free registration for all-electrics, 100% tax deductions for vehicle conversions, and a hefty carbon tax on consumer imports and airline tickets-- carbon tax used to improve public transportation infrastructure. (However,) none of these are going to be done.

Back to "rock and a hard place."

[robertpaulsen]

32. Blaming the price of oil on speculators is like blaming the war in Iraq on the troops.

Yes, there is speculation. Yes, there is corruption. No, we can't trust OPEC. No, we can't trust the Big Oil Companies. All of these issues have risen from a foundation of world oil production flatlining as world oil demand increases exponentially. You could blame Chindia, but hey, they just wanna be like us, right? Nothing wrong with that, right? Right?!

[robertpaulsen]

33. Hey GliderGuider, have you seen Jerome a Paris' latest on this?

Countdown to $200 oil: $140 oil and speculation
by Jerome a Paris
Thu Jun 26, 2008 at 02:50:36 PM PDT
As you may have heard, oil prices have reached a new high above $140. I can already hear the outcry against speculators and their out-of-control games to enrich themselves at our expense.

Never mind that speculators have been caught shortselling oil (ie betting on a fall in prices) more than a few times in recent months. Never mind that spot oil prices, which require actual physical deliveries of oil at the end of each month, have behaved the same way as paper futures. Never mind that oil storage seems to not be increasing.

Nope, it is just too convenient, too irresistible and, let's say it, too comfortable an excuse that speculators are to blame. It's not our fault, we have our scapegoat. Our price increases are temporary, we'll soon be back to "normal" lows, as soon as (take your pick) speculators have been punished/oil companies are taxed for their profiteering/"fundamentals" are left toset prices.

This is just denial

http://www.dailykos.com/storyonly/2008/6/26/152024/105/608/542464

[GliderGuider]

34. Thanks for the pointer. That's a truly excellent piece.

The graphs that struck me the most were the ones showing production capacity vs. output and and refining capacity vs. demand. The convergence on both of them tells the price story.

Here's a graphic from another source that makes you say, "Oh, crap!" -- especially if you're American, European, Japanese, Chilean or a New Zealander -- and most especially when considered in the context of the parlous state of the international oil export market.



The blame game that so many people are playing these days is a paraphrase of FUD: "Fear, Uncertainty and Denial". It's Peak Oil, folks, It's real, it's here, get used to it.

[robertpaulsen]

35. No idle kick, Dave Cohen has a good analysis of the situation.

Beware those evil speculators
by Dave Cohen

He'll cheat without scruple, who can without fear
—Benjamin Franklin

Charles Dingell (U.S. House of Representatives, D, Mich), Michael Masters (Masters Capital Management), and Abdullah bin Abdul Aziz Al Saud (the King of Saudi Arabia) all agree on one thing: greedy speculators playing a rigged game are behind the steeply rising oil price. This rare, exquisite consensus is described in Gas could fall to $2 if Congress acts, analysts say.

Testifying to the House Energy and Commerce Committee, Michael Masters of Masters Capital Management said that the price of oil would quickly drop closer to its marginal cost of around $65 to $75 a barrel, about half the current $135.

Fadel Gheit of Oppenheimer & Co., Edward Krapels of Energy Security Analysis and Roger Diwan of PFC Energy Consultants agreed with Masters' assessment at a hearing on proposed legislation to limit speculation in futures markets.

Krapels said that it wouldn't even take 30 days to drive prices lower, as fund managers quickly liquidated their positions in futures markets.

"Record oil prices are inflated by speculation and not justified by market fundamentals," according to Gheit. "Based on supply and demand fundamentals, crude-oil prices should not be above $60 per barrel." (emphasis added)


I've refrained up to now on commenting on the "speculators" theory in so far as I mainly believe that it merely represents another form of denial about the alarming oil market fundamentals. But with Congress ready to act to further regulate futures trading on the NYMEX, it's time to look at the situation more closely.

more...

http://www.energybulletin.net/node/45834

Good to read the whole article, especially the last paragraph and specifically the last chart. We might go down to $110, maybe even $100, but we will never ever see $70 ever again.

[kristopher]

36. Thank you. Very good read. nt

[pscot]

37. Maybe I'm just simple minded

but it seems to me that the speculators are riding this wave rather than driving it. A market consists of a willing buyer and a willing seller. As long as we, the Indians, the Chinese and sundry others are willing to take delivery of a barrel of oil at $145, that's what it's worth. The notion that a barrel of oil has some ideal value based on cost of production, flies in the face of the most sacred tenet of capitalism, markets rule. If Congress tries to fix the price, a black market will arise to circumvent the fix. Nothing short of a world quota system, with all major users and producers participating, is going to address the problem, and we'll all be ice-dancing in Hell before that happens.

[happyslug]

41. The premise of this thread is Speculators are having an affect

I agree with you (and several other posters agree with you), but the thread is based on a premise that Speculators are having an affect is hat Good or Bad NOT that it is occurring. Historically Speculators ride waves of what they expect to happen in the future, in affect they ride the economy, they do not drive it. Today, Speculators are riding the wave that the price of oil will go UP. This is base on a perceived shortage of oil (i.e. Demand exceeds Supply). I believe that to be the case, but this thread is based on the presumption that the Speculators are driving up the price themselves, and is that good or bad.

[kristopher]

42. Better reread that econ book

markets that are functioning properly deliver the product at cost plus a "reasonable" profit. When it isn't doing that, there is something distorting the market. You can't point to an obviously distorted market and use it as proof of no distortion.

There have been lots of things written about the ability of hedge funds and large investment houses to create an "run" on a stock or a commodity, so it should come as no surprise that they would do it with oil if they can. And as far as I can see, they can. How much fool's money do you think follows the smart money when the smart money is used to create the impression that (INSERT STOCK OR COMMODITY HERE) is where to put your money for a fast return on your investment?

Pump and dump on a grand scale.

[happyslug]

40. I Quote the Declaration of Independence:

"all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed."

This is the heart of the problem, we are the most oil dependent country in the World. It is hard for us to change, and we will NOT change unless we are forced to do so, thus we need the increase in the price of oil to force us to change, including moving closer to work, developing and using mass transit, bicycles and other non-oil dependent systems of transport.

To understand HOW we have to change, you have to look back at HOW the US came to be what it is today. I did a paper a few years ago, I posted it on the Peak Oil Forum. The paper was a rough draft on how we went from a country of compact cities where most people walked or used mass transit to get around, to today's society where everyone has to move by car. It is the story of the suburbs. It needs to be re-written (Some of the reasons for modifications are posted later on in the Thread), but it shows how our society came to be:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=266x203