Supply and demand rears its lovely head

By Reed Black
staff writer


Something very profound has happened in the global oil market.

The price of a barrel of oil appears to be responding to supply and demand again.

As a result, at press time, oil is selling for less than $87 a barrel – as opposed to $147 a few months back.

Saudi Arabia’s oil minister thinks, based on actual demand, it should be selling in the $50 to $65 range – and maybe it soon will.

Some say the big change dates to late summer when the politicians started screaming for the heads of speculators on platters – since some analysts were saying that speculation was accounting for as much as half of the price of a barrel … or even more.

Even the toothless Commodity Futures Trading Commission vowed to “investigate” (but naturally, came up with nothing).

Apparently the CFTC concluded the $69 billion that was pumped into the futures market by big, institutional investors had no impact at all.

Most fourth-graders with a pocket calculator would say otherwise.

In any case, the political and regulatory activity seems to have had a chilling effect on whatever was causing oil to keep going up in price.

Most chilling is the call by some politicians to close the so-called “Enron loophole” that allowed big investors – who have no intention of actually taking delivery of any oil – to buy as much as they want to protect their money against the weak dollar.

We’ll see how it all unfolds.

But it’s refreshing to actually see oil prices reacting to apparent demand – after being told by fast-talking analysts for years that a single broken pipeline in Nigeria … or a refinery retooling in Botswana … or seagull droppings on an off-shore rig are behind the latest big jump in crude. LL