There you go again, Kevin, getting all reality-based. Didn't you get the memo? Wall Street creates its own reality!

Yeh! Gas is cheap again! Now it won't cost so much to drive to work . . . if I still have a job that is.

If Republicans win, oil will go up quicker than if Democrats win. Check the last eight years for evidence.

This is the Geordian knot. So let's expunge Geordies.

But, all we have to do is drill here drill now to pay less, right?

And thank god the Republicans put in some overtime to lower gas prices! Their psychic economic powers are astounding!

/snark

Call it the Obama effect: the more likely he is to win, the better peace prospects look, the cheaper oil futres look,

Thank God I still have my SUV.

K.D., you are like a broken record on this issue: "peak oil", "supply and demand", "speculation not a factor".

I agree that peak oil is going to drive up prices significantly over the long term. I also agree that supply and demand are the primary drivers in the recent runup and current pullback in crude oil prices. However, neither of these factor preclude the possibility that speculation has played a role in how big the movements were in each direction and how quickly prices have changed.

Alright!!! Oil prices are only 10 times what they were ten years ago, instead of 12x. Time to PaRtY!!!!

Of course, worldwide supply is still ~85mm bpd, and worldwide demand is still ~85mm bpd, but who's counting?

On a related note: a bunch of airline stocks have gotten bid up over the last month. Oil's dropping so it must be good news for airlines, right?? Well, other than the fact that they all (excepting Southwest) have business plans predicated on a worst case scenario of $65/bbl oil or so, uh, yeah, sure this last month has been real great for them. Oil's dropping, never mind the fact that it's pretty much still twice as expensive as any of them could have imagined.

tanstaafl: There has been speculation in the oil markets, sure. But, as the Financial Times has reported (6/10), it's mostly been speculation that prices will drop.

Kevin: And we should remind our Republican friends that drilling is a risk. You know, just like starting a business -- it might succeed, it might not.

Assuming drilling will guaranteeably reduce oil prices is like assuming the prize from the lottery ticket you buy today can be used for your next mortgage payment.

Speculation likely had little or nothing to do with either the runup or the rundown in oil prices.

Ya know, I think that secretly you actually like being played as long as it leads to a good blog post sometimes.

Kevin, good points on the price issue; I would concede up to $10/bbl or so on speculation, $10 on Iraq war and U.S. military use, and $10 on other global instability.

So, no, folks, speculation isn't a big driver.

And, to show there's no profit in retail gasoline, Exxon announced last month it plans on selling all its U.S. gas stations.

Yeah, it is just a coincidence that gas prices skyrocketed early in the year and will steadily decline until early November.

Nope, no market manipulation, no internal US politics at play, just FREE MARKET at work.

Yeah, suuurrrre.

If there has been one market that has been openly, and unabashedly manipulated in the last 40 years, it has been the oil market.

Kev, why do you insist it isn't now, with big Oil running this country and reaping record profits?

Afraid of being a conspiracy nut?

Hasn't it been blatantly obvious that the Cheney regime has been openly engaging in conduct that would have given an administration, before 1972, a quick trip to the impeachment chair? All those things that you think your government couldn't possibly be doing, they are doing. And in the famous words of that daring statesman, Big Dick Cheney, FU, what are YOU going to do about it!!!!!

The end of the price run up lagged the demand hit by anywhere between 6 months to a year. So yes, the last little spurt up to 140-150 was speculation.* (note I do not find anything wrong with this) And when the actual inventory surplus became known** about three weeks ago, the speculators left.

*specifically speculation that 1) the demand hit was still small or even negligible - as it was during the first doubling from 30ish to 70ish. and/or that 2) economic growth both in the (non-US)OECD and ROW would stay the course - as it had similarly had not been affected during the first oil doubling and initial gyrations caused by the US financial s***pile. Data over the last month shows that both premises may be faulty.

**more precisely when the reported inventory surplus greatly exceeded the projected surplus - in fact iirc a slight shortfall was projected

I guess I should say that the speculators didn't leave (although some have for the dollar and equities); most probably have just reversed direction. You can see on the bloomberg home page the successive popping of commodity bubbles in wheat, then corn, and now oil.

It is not unusual for a secular Bull market to have a vicious correction. That is probably what we have with oil prices. There are more cars than ever in the world today and that is an installed base of oil consumers. People in China and India are racing to buy more cars partly due to their newfound wealth and partly because their prices at the pump are subsidized. Those folks are also racing to catch up with material consumption and a big part of that is fueled by oil.

With each passing day demand is increasing, known supply is decreasing, and there is no viable alternative on the horizon.

Remember that tech stock prices and home prices marched to dizzying heights even as new supply was made available at a dizzying pace (new IPOs and new construction). Now imagine how oil and commodity prices can go up with increasing demand and fixed supply.

Gas prices will stay low (relatively) as long as we don't buy any.

This reminds me of an old Taxi episode. Louie is dating crazy Emily who finds him loathesome and repugnant. Louie demeans himself, running errands all over town for her to try to please her, but it doesn't work. She breaks up with him, telling him that her shrink told her that she can only love men who abandon her. So what Louie wants, her love and devotion, she can only feel when he's gone.

So you think a recession is a terrible thing, huh? What are you, God? Any first-year business major will tell you that recessions are as important as boom times in the economic cycle. They clear out inefficient producers and products. Sure, we can try to mitigate their effects and it would be nice if we helped people of lesser means through tough times, but to act as if recessions are inherently bad and should be avoided at all costs is a dangerous delusion, and an all too common one.

I say we let oil producers drill offshore with two caveats: (1) Any spills must be cleaned up totally, at their expense, and (2) if unleaded gasoline is not down to $2 per gallon by the end of 2009, we can tax the shit out of their profits and possibly, nationalize them.

Let's call these greedy bastard's bluff!

"Speculation likely had little or nothing to do with either the runup or the rundown in oil prices."

You are so naive.

I disagree that speculation had little or nothing to do with the runup in oil prices, but the current downward move is driven in part by reduced American consumption. The Chinese are still producing thousands of new cars per day. The Indians are doing the same. Oil production has not expanded. Medium term oil heads north again.

I am worried right now about the high cost of heating oil in the North East. Why don't those people convert from their oil heaters?

Relax, My fellow Americans, NEWT GINGRICH has the answer (or should we say REPUGS do)...there is more oil available in the west, offshore, and in Alaska than in "all of the middle east"...he KNOWS this...his new book and movement "WE HAVE THE POWER" will explain it to the murkin people this fall...so just CLAP YOUR HANDS and believe in the Repug Tinkerbells and all will be well...you know, like they've managed everything so well for the past three decades they were IN POWER!!!!! My God, don't underestimate the STUPID.....

Recessions are the normal result of runaway speculation that leads to economic bubbles. You know, bubbles like the Housing Bubble?

How bad was the Bubble? Merrill lynch just sold off $30 billion of mortgage backed CDO's at 22 cents on the dollar - and they had to lend the buyer 75% of the purchase price to even get that good of a deal. That's what backs a lot of the assets that the big banks have been using to back the loans they made, and its worth at best 22 cents on the dollar? At best?

The banks are already cutting back on almost all loans, to include credit card loans. They have to. They sharply leveraged the growth on the way up so as to get larger profit, but as everyone with a little financial knowledge knows, the same leverage that adds to profits as the economy rises causes equally large leveraged losses on the way down. The banks and financial institutions are leveraged to the hilt. And that leverage was measured when they had the mortgage-backed securities on their books at full value. Those securities are now worth -- at best -- about one-fifth of face value. The leverage they thought they had just got a lot worse as the assets they were leveraging drops in value.

They have to unwind that leverage to survive and a lot won't. So loans are going to be a lot harder to get. That means that consumption spending is dropping and will continue to drop. That explains the slow increase in unemployment, which will continue to rise as the recession deepens.

That recession is spreading across the world, too. Less consumption means less business and less need for oil. Kevin's right. The drop in the price of oil is the normal working of supply and demand.

One explanation for previous long recessions is that they result when the economy undergoes radical and rapid change. Our world economy is based largely on low-cost oil and cheap energy, and the supply has stopped growing. The cost of energy of all types is rising and will continue to rise, even as all the economies in the world outside may Somalia are trying to expand. That's a very energy intensive trend. The result is clearly a radical and rapid change in the total economy.

I am worried right now about the high cost of heating oil in the North East. Why don't those people convert from their oil heaters?

To what? Gas is not available on our street, solar is much less effective here than further south (been thinking seriously about a larger south-facing window, though), ground-sunk heat pumps are a big up-front expense. We've already got a small wood stove, but wood's tight already, other people are talking about pellet stoves but there's a finite yearly supply of pellets.

Our current plan involves more sweaters.

Don't head out to buy a Hummer just because gas is flirting with $4 a gallon again.

Of course not. Hummers are for sissies. I just ordered my new Extinction. I had to take out a home equity loan to pay for it, but hey. It's an adjustable rate loan, rates are low, and they won't go up for at least a year. Right?

Why are you looking at me like that, honey?

Amazing how peak oil can peak out out almost 150 a barrel and then drop down to 120 a barrel on pure "speculation" alone, huh Kevin?

The drop in price seems to coincide with massive complains from airlines and transportation companies and lots of bank failures. Maybe the big oil companies realized they got a little too greedy with their price fixing schemes.

It is NOT peak oil - it's price fixing and its always been price fixing. The same price-fixing that big oil caused when we had all those savings and loan problems in the mid 1980's and now, since Bush has gotten into office, Big Oil has been liberated once again to price fix without invesitgation.

This is why we need autos that run on water, since we know this man, John Kanzius produced a way to get hydrogen from salt water, we don't NEED big oil anymore, and we damn sure don't need a war in Iraq over oil. It's time to leave that toxic crap in the ground. Big oil was never interested in fair business deals anyway, nope, they were only ever interested in price gouging and killing foreigners over unfair business deals in any place were oil was a resource.

We don't need big oil anymore, we need new technology in our vehicles and that's all we need. We don't need BP or ExxonMobil or the slavery through our government to us, we need freedom and new technology.

"To what?" I have a heat pump. You are right. A large up front cost, but I don't have to worry about running out of oil.

oops wrong link.

here is the right one.

http://www.youtube.com/watch?v=3SslCpQ26IY

To be fair I live in the Midwest. We don't have all the rocks that are common in the North East.

"In the long term, you can count on oil prices to continue heading up."

Not really. I wouldn't count on it. Not at all. The price of oil will be less than $20/b in 25 years. Count on that. ... Unfortunately, the water we use to run our fuel-cell cars then will cost $5/gal.

dr2chase:
There are also air-source heat pumps. Not as efficient as ground source, but a lot cheaper and easier to install. Many of these are only good when it is only moderately cold outside -so you can't use them for the coldest weather, but they would still cut your oil consumption.

And, of course there is also insulation, and sweaters. Not an ideal solution, but at least you can reduce the hit.

Longer term, Russians bought 40% more cars than last year. Chindia car ownership is also on a steep increase. This fall Tata introduces the $2500 Nano. Expect that dramaticly more engines will continue to bid up the price in the near future. Our break is probably only going to be for a few months to maybe a year or two. And of course GWB had one oil price lever, frightening rhetoric about attacking Iran. This has been dialed back for now, because he wants low(ish) oil prices before the election.

Boone Pickens made 1.5 billion on oil speculation.

Im supposed to believe these profits by folks like him and Exxon made all that money because speculation wasnt a part of high prices?

BS

It's pure ignorance to assume OR believe that "oil prices" are driven solely by supply/demand factors of the actual commodity itself. Fact is: The United States Treasury went on a DELIBERATE dollar destruction program in order to lower the future debt levels of the Iraq/Afghanistan/World war - this was the ONLY way the country could afford these trillion dollar forays without completely destroying the entire banking system. Instead of taxing American citizens thru legislation, they taxed the world in a defacto manner. Every single one of us who fills up at the pump became a victim of their games, filling up the over-sized funnel which lead straight to the coffers of ExxonMobile, Chevron, BP and the other blood-thirsty criminal corporations who would not survive were it not for the corporate welfare state. Supply/demand does not "disappear" in just one month's time, Kevin. That is pure foolishness to believe. Your mind is being manipulated just the same as the financial markets themselves. It's time for the sheeple to learn this - and never let the Bush/Cheney/Clinton's of the world repeat it again.

The media is grossly misleading the public again and again. The US is in debt to the tune of 9 or 10 trillion dollars. That, with enormous trade deficits, lowers the value of the dollar, which in turn increases oil prices. Demand hasn't doubled in the last 9 or 10 months, it's a ridiculous assumption, so I agree that the supply demand argument is simply stupid.

Why do Republican talking points about drilling get repeated AS IF oil companies will drill simply by Congress ordering them to drill? Haven't we been subjected to years of free market ideology saying government can't control markets? Oil companies aren't going to drill for oil any time soon, why should they, when they can make billions by keeping supply off the market. Besides it's incredibly expensive to drill and there's a shortage of engineers and oil rigs.

But never mind, Congress needs to get to work and drill for oil. I didn't know Congress had the engineers and rigs ready to go, did you?

"That, with enormous trade deficits, lowers the value of the dollar, which in turn increases oil prices."

No one, but no one is talking about this and it's so frustrating to get people to even ponder it. This accounts for the increase in price north of about 90$.

This needs to be the topic, the effect of the massive debt run up by the stupid war.

We've already got a small wood stove, but wood's tight already, other people are talking about pellet stoves but there's a finite yearly supply of pellets.

Yup, and that supply is going down. Seems with the slowdown in construction there is less 'waste' sawdust to use for wood pellets so now they are simply grinding the logs completely for pellets.

Of course the price for the pellets has shot up but we gotta burn *something* for heat, right?

I have "peak wood" at about 8 in the morning.
heh heh heh

This needs to be the topic, the effect of the massive debt run up by the stupid war.

You should always bring up the massive debt of 9 trillion to any wingnut you know. Stops them in their tracks.

But not many people in general have the emotional or intellectual strength to confront this overwhelming financial mess. Like Suskind's book release, the impeachable crimes, there's isn't going to be enough strength to confront it, and the media will allow people to ignore it.

Demand hasn't doubled in the last 9 or 10 months, it's a ridiculous assumption, so I agree that the supply demand argument is simply stupid.

Um, Jan? Saying that demand must double for prices to double is the stupid thing. Try understanding what happens when inelastic demand meets inelastic supply.

Put another way, we NEED the oil, there is no good alternative, and supply cannot increase and will soon start to decrease.

In tight markets like that little disruptions can have huge effects on the price.

Yes, the disruption caused by speculators can have a huge effect but overall the oil companies are in a sweet spot to be without doing anything wrong. They are sitting on the most precious thing in the world today and the demand will do nothing but rise.

Oops, the last was from me.

the media will allow people to ignore it.

The media are shills.

Kinda hard for people to ignore the price at the pump and the price at the grocery store. I know, along with driving less we can all eat less too.

Great idea for fat and lazy Americans. Not so great for the foreigners starving today.

My hope is that when we stupid Americans are confronted with the Beijing Olympics we will see two things: First, all the great things our money has built over in Beijing instead of here in the US. Second, how costly and unsustainable our current economic path is. Will we see respirators on the marathoners?

Kevin speculation had everything to do with the run up in oil prices. Now that the big boys have taken their profits and a few smaller actors have been burned it doesn't look like such a sure bet anymore. Besides when they look at their portfolios they realized that this gravy train was killing their other investments.

And the oil supply isn't fundamentally constrained, it's shrinking. The big easily accessible sweet light crude fields are tapping out and increasingly the only finds are smaller harder to pump sour deposits.

Based on what, exactly, do you assert speculation has nothing to do with prices? Are you more market-savy than the dozens of individuals that make a life watching the energy industry who have said otherwise:

http://www.stopoilspeculationnow.com/site/page/oil_speculation_quotes_by_financial_and_energy_experts

I'm still waiting to hear what the HUGE developments have been that have sent oil racing up and down the last two years.

Kevin speculation had everything to do with the run up in oil prices. Now that the big boys have taken their profits and a few smaller actors have been burned it doesn't look like such a sure bet anymore. Besides when they look at their portfolios they realized that this gravy train was killing their other investments.

Now that the speculation bubble is over when will we see the price drop back to $25/bbl, or even $50/bbl factoring in the lowered value of our dollar?

Speculation accounted for about as much as the foamy head on a glass of beer.

I'm still waiting to hear what the HUGE developments have been that have sent oil racing up and down the last two years.

Gee Sojourner, do you mean besides the fact that production has hit a limit and demand has not? You mean something other that that?

How about the fact that we've wised up enough to realize burning our food won't solve the problem, eliminating one of the hoped for alternatives?

How about the fact that Bush has significantly devalued our Dollar?

So besides the fact that production is at a limit, demand is increasing, the alternatives are looking worse and worse, and our money won't buy crap you want some other answer?

Honestly. There are three things that are effecting to price of oil right now:

1) Demand - China has pulled way back for the past few weeks in a failing attempt to clear the air for the Olympics. Once the Olympics are over, look for them to fire the engines back up.

2) Speculation - recent moves by the criminals running our financial casinos have once again made the financial sector safe for investment. The big money is moving out of commodities and back into financials chasing returns.

3) Election - Big Oil is not interested in a Democratic president and high gas prices are a huge liability for anyone with an R behind their name in November. The big boys are just doing their part to ensure that the candidates most friendly to their profit margin get elected in November.

Tripp, could you explain your opinion a little further? My understanding is that surplus production capacity has been hovering around two to three million barrels per day since 2003 (before that, it was much higher), so I don't see how limited production is creating the recent spike.

On the current run up in oil prices speculation played a huge role; where's the accountability and oversight?

Amazing how fast we got used to the new price points. A year or so ago we heard anguished screaming over the "sky high" price of $2.50. Now when it drops down to around $3.70, the raido stations are all talking about "cheap gas."

antiquelt ------ "On the current run up in oil prices speculation played a huge role; where's the accountability and oversight? "

I agree with the democrats that speculation has to be controlled. If only they cared enough to stay in session and do some thing.

On the current run up in oil prices speculation played a huge role; where's the accountability and oversight?

"Speculation" (which is nothing more than buying with the intent to resell rather then be an end-user) is not only inherent in any commodity market system, its the whole point. Yes, sometimes speculators will, as a whole, overestimate the future value of a purchased interest, causing a bubble; sometimes they'll do the opposite and artificially suppress prices. But unless you make it so that people much purchase non-transferrable contracts from a specific producer, you won't eliminate speculation and it doesn't even seem to be coherent to argue that you should if you want anything remotely like a free market system. (Now, clearly, if one wanted to make oil a public utility, you could eliminate speculation entirely; of course, since you'd need an effective world government to make that work, so its not really practical. You could make the US government the sole importer of oil, and a mandatory middleman between all domestic oil producers and anyone selling to end users, and so limit domestic speculation, but, that wouldn't have much effect on US exposure to price impacts from speculation on world markets. There's no accountability for speculation, whatever impact it has, because there is no authority with the scope necessary to impose such accountability.)

I'm still waiting to hear what the HUGE developments have been that have sent oil racing up and down the last two years.

The average price has been heading up sharply while price votality has been much greater than previously because of the 2005 production peak and the great uncertainty about the long-term impact of that. (The increased destabilization of the Middle East and Central Asia in the last several years probably is a secondary contributor to both price increases and volatility.)

"Speculation" isn't so much of a root cause as a one mechanism by which those factors result in increased volatility.

My understanding is that surplus production capacity has been hovering around two to three million barrels per day since 2003 (before that, it was much higher), so I don't see how limited production is creating the recent spike.

It is nearly impossible to know what the surplus production is. OPEC for sure ain't telling. Sometimes Saudi Arabia says they open their spigots and sometimes they will, briefly, and other times they won't.

In my opinion, watching production, we are either at or very near peak oil - the time when production cannot be increased and will slowly drop off.

If you have inside info regarding the actual surplus unused production I'd sure like to hear it.

As one anecdote the TV show "Black Gold" made a big deal out of nine new wells being drilled in west Texas and near as I could tell from the limited info they are hoping each well will product 50K bbl of oil total. Big news to the drillers but a drop in the bucket for global demand.

Among investors, there is a broadly held view that growth is slowing not just in the United States but worldwide, and that demand for fuel will ease in turn and bring oil prices back to more reasonable levels. "It's a fact that demand is slowing down," [Fadel] Gheit said. "I do believe, more likely than not, we've seen the peak in oil prices."

Speculation likely had little or nothing to do with either the runup or the rundown in oil prices.

Um, one of us has a reading problem here.

Tripp:How about the fact that we've wised up enough to realize burning our food won't solve the problem, eliminating one of the hoped for alternatives?

Has someone actually been saying this is why oil prices have risen? Honest question, I haven't heard anyone putting the blame on biofuels.

How about the fact that Bush has significantly devalued our Dollar?

That has certainly contributed, I don't argue that. However, if the price is reflecting increasing demand and limited supply, then these changes should be very gradual, not shooting up and down.

To those around here skeptical of speculation-driven oil bubblings: Now, can you still believe that simple "fundamentals" could cause a rapid rise up to about $147 over a few months, and then the price drop back to about $117 over several weeks? Huh?

How about the fact that Bush has significantly devalued our Dollar?

That has exactly zero impact on the fact that oil prices adjusted for inflation have been rising rapidly for the last few years, and are at near the highest they've been since the late 19th Century. Because oil is traded in dollars, though, the uncertainty in the US dollar probably does play some role in the short-term price volatility around the trend-line of longer-term increase.

Hmmm I thought congress had hearings to find out the reason for the rise in oil prices. What did they find out?

"In the long term, you can count on oil prices to continue heading up."

This was true in 1980, but oil price went down and stayed down for over 20 years. This is why policy can't be based on individual choice - if gas is cheap two years from now, people will buy hummers two years from now.

Above all, there must be monetary support for research to find something to replace fossil fuels. This is vital to preserving civilization as we know it.

China just took tons of cars off the road in order to try to cut down on smog for the Olympics. It forced vacations on many workers. That, plus Americans not taking vacations out of town this year, brings down demand...