[Olaf]

The following offers what sounds to me like a good explanation in layman's terms for where we are right now in regards to the markets, and with supply of oil.

Olafr
........................

Earlier this month, according to several peak oil bloggers, the world passed a milestone worth noting: the point at which oil, in constant dollars, became more expensive than ever before in history. Plenty of us in the peak oil community have been expecting that milestone any time now, and the surge that pushed one widely watched price marker past $112 a barrel last week turned the expectation into reality.

Profit-taking and a flurry of margin calls driven by the wider economic crisis brought oil prices back down at the beginning of this week, at least for the moment. Meanwhile, though, the higher cost of oil is already starting to trickle down to the consumer level. Diesel fuel is up over $4 a gallon in many US markets, while gasoline, heating oil, and other petroleum products are following the same curve. Speculation, in several senses of the word, has begun to focus on the upcoming summer driving season and the likelihood of soaring prices at the pump.

Just now, however, it may be worth taking the long view. When Goldman Sachs suggested, not so long ago, that oil prices might rise above $110 a barrel, their analysts thought that it would take a crisis threatening some significant fraction of world oil production to drive such a “superspike.” (That warning was widely and, I think, correctly interpreted as an attempt by New York financial interests to talk the cowboys in Washington D.C. out of launching a war with Iran.) The crisis has so far failed to materialize, but the superspike showed up anyway.

Like any other economic phenomenon in the real world, that unexpected event had numerous causes. One factor not often given sufficient weight, at least in the peak oil community, is the role of speculation. The global economy these days is dominated by flows of speculative money that pour into any investment promising an above average rate of return. Just now, commodities – fossil fuels, grains, metals, and the like – yield better returns than most other investments, and so that’s where the money goes.


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[aahala]

$this->bbcode_second_pass_quote('Olaf', '
')Earlier this month, according to several peak oil bloggers, the world passed a milestone worth noting: the point at which oil, in constant dollars, became more expensive than ever before in history.

[efarmer]

This highest ever price of crude is a fuzzy line indeed. Over
the last year or two I have seen it calculated to be values that
ranged in today's dithering dollar value over a range of prices
from the high 80's to about $110. When you see the usual
divided opinions and camps set a series of numbers, each
containing a bias or benefit of the doubt for the view of
the numerating party, and they are all exceeded, you are
probably safe to call a new high value. Like peak oil itself,
these things only get precise to a consensus point when
they are in the past instead of the present.

Oil is expensive and when we turn down buying it,
someone else snaps it right up. Sec Def also liked
the word fungible.