Home » Future » What’s driving oil prices?

What’s driving oil prices?

Saw a fascinating squib on TV today with a fellow filling up a dozen gas tanks in order to beat the rising price of gas and driving off with all these plastic, orange containers on the back of this truck. That was followed by a slightly more organized version in which people purchased gas from a dealer and stored it in his tanks from which they could later draw. One fellow was laying out something like $10,000 to protect himself against future rises in price. And, of course, be engaging in this hoarding behavior these folks are guaranteeing that they will see the price rise that they expect. Once people expect inflation to occur, then as day follows night inflation will follow.

We are led to believe that this hoarding behavior is taking place on a very large scale, involving international speculators who are trading in oil rather than dollars. The US buys goods from China and pays for those goods in dollars. Historically, China then invests those dollars in US government securities where they have earned a good rate of interest. Now the Fed has slashed that interest rate and on top of that the dollar is in a free fall. So, a better place for China to put its dollars is to use them to buy oil today and take delivery of it in the future. This has turned oil into a currency effectively and its inherently hoarding effect is causing the price of oil to rise, which is exactly what the speculator wants to happen – when invested in oil – and fears happening — if not invested in oil.

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