July 29, 2008

Right. And Wrong.

The NYT Ed team spent Sunday congratulating Democrats for stopping retarded R efforts to drill in ANWR and the OCS. Then they congratulated the R's for keeping the Demo's from enacting legislation to restrict speculation in commodities.

While speculation is not the only thing driving oil prices, it IS a substantial component. Failure to acknowledge that fails to acknowledge the nature of markets and momentum players in them. For another, oil has steadily trended higher on rumor and, wait for it, speculation about events around the world. Why, for instance, Nigeria and production problems there have been the reason for fully $10 of the rise in oil at a minimum. Which would be understandable if Nigeria WASN'T PRODUCING ANY OIL.

Like all commodities, demand is an issue. However, the primary talking point regarding the case for no speculative bubble has been (mostly from people in NYC) that gas demand hasn't fallen despite the historic high price. Of course, what's left unsaid is that refiners haven't been able to pass THAT price, NYMEX spot, onto consumers. And that demand destruction is, in fact occurring.

The Ed Board at the Times apparently thinks that speculation is only someone trying corner the market. It's not. It's money chasing money regardless of fundamentals. While I wasn't a big fan of the D plan (I'd have rather seen short term cap gains taxes, realized in less than a year, drilled up to 70%) it would have at least done something. Of course, as the Times points out, it would have hurt hedging operations for airlines.

I guess the bright folks up there don't realize that there are other ways to hedge. And that absent speculation, there isn't as much of a need TO hedge.

Posted by mcblogger at July 29, 2008 11:46 AM

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