Aug 12, 2008

Speculation in Crude Oil, Middle men and prices

Here is one (my) perspective on how speculation was affecting price of crude oil , but profit margins of refiners (solo refining companies like Valero, Sunoco, etc) have not really gone up. Of course for the common public, the face of gasoline are companies like Valero/Sunoco/LukOil in some markets in US. The presence of "speculators" in the energy futures markets has just added more middle mento the path the crude oil takes from the well to the refinery and then to the gas station (petrol pump).
The addition of middle men is going to increase the cost of the goods at the final step. This is NOT any kind of value addition. But it was merely was an artificial way to increase the demand on a given contract of crude oil. The addition of speculators (who cannot be prevented in a truly free market) definitely puts an increased "Phantom Demand" for crude oil-which is merely a dirty oily raw material.

But wait, I dont think we are done when it comes to the price increase of crude. It will rise again but in a more gradual way and climb towards $250 within 3 years. If that does not happen, you can fry a donut in crude oil and serve it to me.
The increased demand due to actual use (of newly added vehicles, increase in vehicles in India and China, SUVs and pickups in the market all over the world) is a totally different factor.

2 comments:

Pradeep said...

A donut fried in crude oil would sure do Jed Clampett and Granny proud :-)
(http://www.imdb.com/title/tt0055662/)

Myinvestorsplace said...

That situation may comes true sooner as the oil price raise is constant and aggressive nowadays.

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