Hey, I'll tell you all right up front that I didn't read any link Saxi provided. But the notions of why oil prices increase are all pretty much bullshit. Either from saxi's POV or BBS' economists POV.
The four most common excuses for rising oil prices and why each is total bullshit follows-
1. Rising Middle East Tension. This is probably the #1 reason cited why oil prices are rising. The problem with this reason is it's a constant, not a variable. Since when has the middle east
not had tension? Here are some headlines we see all the time-
"Impact from Libya conflict to show up at the gas pumps" (2011, Seattle Times)
"Oil prices surge to new record high responding to escalating violence in the middle east" (2006, US News and World Report)
"Crude oil prices at a six month high on mideast worries" (2002, New York Times)
I can list out these headlines all day, but it just shows that "middle east tension" is an ongoing saga. So it's not a variable that all of a sudden gets so bad as to affect the price of oil. It's a bullshit reason that easily impressionable people believe.
2. Increased Demand. Characterized as increased demand from China. Now it's true to some degree that China has increased demand, more so in the last few years, but that also is ongoing. One thing forgotten is that while China's demand increases, demand in the US and Europe has decreased. The net increase in demand is not enough to cause the tripling of oil prices in ten years. Not even close.
3. Speculation. Oil is a multi trillion $ commodity, you can't manipulate that market for the long term.
We remember the stories in the great crash, when gas prices went nuts. Senators were on the idiot box spouting that it was because of the evil speculators. Now ignoring that speculation serves a vital market process which I'm not going to go into right now (I'd assume that BBS understands what positive role that speculation plays in markets) but speculators can't speculate on everything. The idea that speculation plays a long term role in rising prices of commodities is baloney. Literally, from the BLS price of bologna-
So are there evil baloney speculators out there driving up the price of bologna? How about eggs? Are there evil egg speculators driving up the price of eggs?
I don't think so, maybe there is another reason for the rising prices? We'll get to that, still one more reason to go over.
4 Greedy oil companies. Now this reason is the most emotional and is probably what a lot of people believe. Now this reason may make sense if you are a first year student at Sarah Lawerence-
but let's actually look at the numbers. In the last three quarters of 2011 Exxon had revenues of $357 billion. That sounds like a lot, but Exxon's after tax profit was $31 billion. That's an 8.7% after tax profit margin. Now excluding the average Mom and Pop shop who has 40-50% markups on the stuff they sell, let's look at everyone's favorite tech company, Apple during the exact same time period.
In the last three quarters of 2011 Apple had revenues of $103 billion and $27 billion in after tax profit. That's a 26% after tax profit margin.
So Apple who makes disposable gadgets in a sweatshop overseas has a 200% larger profit margin than Exxon who has the audacity to provide the stuff that makes all our lives possible, from the gas we put in our cars to the plastics that we take for granted.
Not to mention the US government makes more money per gallon of gas in the US than the oil companies do. But that's another discussion. But if the oil companies are greedy and evil for the money they make, then what does that make the US government who makes even more money from the oil than the oil companies do?
So those are the four main reasons you hear of why oil prices are increasing but none of then explain the long term trend of increasing oil prices. There is only one explanation for the reason of those long term increases in gas and oil prices.
Inflation, and it's the least exciting explanation of them all, but it's the truth. It doesn't sell newspapers though, nothing sells newspapers better than war, death, greed and blaming specific groups of people for evils. It's not that oil is more valuable, it's that the dollars used to buy the oil become less valuable. So it takes more of them to buy the oil.
Here is the S&P 500-
and the Fed and Obama will trip all over themselves to take credit for the rise and pat themselves on the back for the rising stock market but when it comes to the price of oil-
They invent all kinds of excuses as to why it's not their fault that oil is going up at the same time as the stock market.
Now I'm just explaining reality. One can call me a shill for the oil companies or whatever, but the reality is that inflation hurts the poor and the middle class the most. The rich guy in the maserati doesn't give a crap if gas prices are $5 a gallon. But you should. And you should understand why.
The Fed and the government pursue policies that help the richest, drive up inflation which increases asset prices which makes the owners of those assets richer while making the poor working schmuck poorer because the price of all the things he needs and buys everyday keeps rising faster than he's making money.
The US government doesn't have to cause wars to make the oil prices rise. They do that by just keeping on printing dollars.
