Global Economy // Current TV

The real reason why oil prices are rising

By now it is becoming too obvious that the United States is playing the oil game all over again. And this is the desperate gamble of a country whose economy is neck deep in trouble.

Given this scenario, managing prices of oil is central to the US economic architecture. Expectedly, this gamble has been played in a great alliance between the US government, US financial sector and the media.

Naturally, since the past few years, the US financial sector has begun to turn its attention from currency and stock markets to commodity markets. According to The Economist, about $260 billion has been invested into the commodity market -- up nearly 20 times from what it was in 2003.

Coinciding with a weak dollar and this speculative interest of the US financial sector, prices of commodities have soared globally.

And most of these investments are bets placed by hedge and pension funds, always on the lookout for risky but high-yielding investments. What is indeed interesting to note here is that unlike margin requirements for stocks which are as high as 50 per cent in many markets, the margin requirements for commodities is a mere 5-7 per cent.

This implies that with an outlay of a mere $260 billion these speculators would be able to take positions of approximately $5 trillion -- yes, $5 trillion! -- in the futures markets. It is estimated that half of these are bets placed on oil.

Readers may note that oil is internationally traded in New York and London and denominated in US dollar only. Naturally, it has been opined by experts that since the advent of oil futures, oil prices are no longer controlled by OPEC (Organization of Petroleum Exporting Countries). Rather, it is now done by Wall Street.

This tectonic shift in the determination of international oil prices from the hands of producers to the hands of speculators is crucial to understanding the oil price rise.

Today's oil prices are believed to be determined by the four Anglo-American financial companies-turned-oil traders, viz., Goldman Sachs, Citigroup, J P Morgan Chase, and Morgan Stanley. It is only they who have any idea about who is entering into oil futures or derivative contracts. It is also they who are placing bets on oil prices and in the process ensuring that the prices of oil futures go up by the day.

But how does the increase in the price of this oil in the futures market determine the prices of oil in the spot markets? Crucially, does speculation in oil influence and determine the prices of oil in the spot markets?

Answering these questions as to whether speculation has supercharged the demand for oil The Economist, in its recent issue, states: 'But that is plain wrong. Such speculators do not own real oil. Every barrel they buy in the futures markets they sell back again before the contract ends. That may raise the price of 'paper barrels,' but not of the black stuff refiners turn into petrol. It is true that high futures prices could lead someone to hoard oil today in the hope of a higher price tomorrow. But inventories are not especially full just now and there are few signs of hoarding.'

On both counts -- that speculation in oil is not pushing up oil prices, as well as on the issue of the build-up of inventories -- the venerable Economist is wrong.

The finding of US Senate Committee in 2006By now it is becoming too obvious that the United States is playing the oil game all... more

sinlung
added this
3 years ago
|
2 comments

This is not an economic slowdown ... this is a shift in the world economy

Higher gasoline prices represent "a structural change, not just a cyclical... more

kDrew_Productions
added this
3 years ago
|
17 comments

Debt woes drive thousands of Indian farmers to suicide

On the last night of his life, the farmer walked into his dusty fields, choked down... more

JanforGore
added this
4 years ago
|
21 comments

Overlooked on the global food crisis: a problem with dirt

Science has provided the souped-up seeds to feed the world, through biotechnology and... more

JanforGore
added this
4 years ago
|
1 comment

Hunger. Strikes. Riots. The Food Crisis Bites

It is the constant sensation of hunger that makes Kamla Devi so angry. She argues with shopkeepers in New Delhi over prices and quarrels with her husband, a casual labourer, over his wages - about 50 rupees (60p) a day.

'When I go to the market and see how little I can get for my money, it makes me want to hit the shopkeepers and thrash the government,' she says. A few months ago, Kamla - who is 42 - decided she and her husband could no longer afford to eat twice a day. The couple, who have already sent their two teenage sons to live with more prosperous relatives, now exist on only one daily meal. At midday Kamla cooks a dozen roti (a round, flat Indian bread) with some vegetables fried with onions and spices. If there are some left, they will eat them at night. The only other sustenance that the couple have are occasional cups of sugared tea.

'My husband and I would argue every night. In the end he told me it wouldn't make his wages grow larger. Instead we went down to one meal a day to cut costs.'

It is a grim, unsettling story. Yet it is certainly not an exceptional one. Across the world, a food crisis is now unfolding with frightening speed. Hundreds of millions of men and women who, only a few months ago, were able to provide food for their families have found rocketing prices of wheat, rice and cooking oil have left them facing the imminent prospect of starvation. The spectre of catastrophe now looms over much of the planet.

In less than a year, the price of wheat has risen 130 per cent, soya by 87 per cent and rice by 74 per cent. According to the UN's Food and Agriculture Organisation, there are only eight to 12 weeks of cereal stocks in the world, while grain supplies are at their lowest since the 1980s.

For the Devi family, and hundreds of millions of others like them, the impact has been calamitous, as Robert Zoellick, the World Bank President, warned at this weekend's G7 meeting in Washington. Brandishing a bag of rice, he told startled delegates from the world's richest nations that the world was now perched at the edge of catastrophe.

'This is not just about meals forgone today, or about increasing social unrest, it is about lost learning potential for children and adults in the future, stunted intellectual and physical growth,' he said. Without urgent action to resolve the crisis, he added, the fight against poverty could be set back by seven years.

end of excerpt.
~~~~~~~~
Is this a true catastrophe in the making brought on by overconsumption? Or a manipulation of the poor by world governments to find an excuse for their new world order?It is the constant sensation of hunger that makes Kamla Devi so angry. She argues with... more

JanforGore
added this
4 years ago
|
2 comments

World Bank accused of climate change "hijack"

BANGKOK (Reuters) - Developing countries and environmental groups accused the World Bank on Friday of trying to seize control of the billions of dollars of aid that will be used to tackle climate change in the next four decades.

"The World Bank's foray into climate change has gone down like a lead balloon," Friends of the Earth campaigner Tom Picken said at the end of a major climate change conference in the Thai capital.

"Many countries and civil society have expressed outrage at the World Bank's attempted hijacking of real efforts to fund climate change efforts," he said.

Before they agree to any sort of restrictions on emissions of the greenhouse gases fuelling global warming, poor countries want firm commitments of billions of dollars in aid from their rich counterparts.

The money will be used for everything from flood barriers against rising sea levels to "clean" but costly power stations, an example of the "technology transfer" developing countries say they need to curb emissions of gases such as carbon dioxide.

As well as the obvious arguments about how much money will be needed -- some estimates run into the trillions of dollars by 2050 -- rich and poor countries are struggling even to agree on a bank manager.

At the week-long Bangkok conference, the World Bank pushed its proposals for a $5-10 billion Clean Technology Fund, a $500 million "adaptation" fund and possibly a third fund dealing with forestry.

However, developing countries want climate change cash to be administered through the existing United Nations Framework Convention on Climate Change (UNFCC), which they feel is much less under the control of the Group of 8 (G8) richest countries.

"Generally we have been unpleasantly surprised by the funds," said Ana Maria Kleymeyer, Argentina's lead negotiator at the meeting.

"This is a way for the World Bank and its donor members to get credit back home for putting money into climate change in a way that's not transparent, that doesn't involve developing countries and that ignores the UNFCC process," she said.
BANGKOK (Reuters) - Developing countries and environmental groups accused the World... more

JanforGore
added this
4 years ago
|
1 comment

Future Superpowers

We were brought up in an era where America was heralded as the world's... more

Stanislaw
added this
4 years ago
|
6 comments

Al Gore meets With Manmohan Singh, discusses climate change

Photo: PTI / Vijay Verma The former U.S. Vice-President, Al Gore, with Prime... more

JanforGore
added this
4 years ago
|
5 comments

Scotland's Fairtrade nation campaign backed by government

Scotland may become the world's first Fairtrade nations, and the plan has been... more

abbym0308
added this
4 years ago
|
1 comment

Fairtrade sales soar, up 81%. But how fair is it?

The Fairtrade industry is booming. In 2007, we spent £493 million on Fairtrade... more

abbym0308
added this
4 years ago
|
3 comments

Buy Fair Trade Chocolate for your Valentine!

There's no denying that eating chocolate, if you are a chocoholic, makes you feel... more

resolute
added this
4 years ago
|
0 comments

China's energy policies 'do not tackle climate change'

Is this because there is no incentive for them to do so? Or because they simply do not... more

JanforGore
added this
4 years ago
|
2 comments

Newsblast! Week in Review

French rogue traders, youth pastor dating schemes, and power plants that run on crap.

infoMania
added this
4 years ago
|
2 comments

Make your voice be heard!

The Annual World Economic Forum in Davos, Switzerland, is accepting the participation... more

ccdvproductions
added this
4 years ago
|
0 comments

Watch the stocks collapse in real time!

We're in the 21st century guys! Instead of watching rolling news reports and... more

phillyharper
added this
4 years ago
|
2 comments

The beginnings of a recession?

It's been a bumpy day for the London stock exchange, infact I'd go as far to... more

phillyharper
added this
4 years ago
|
0 comments

The other oil shock: Vegetable oil prices soar

Rising prices for cooking oil in India are forcing residents of Mumbai to ration every... more

mirimysweet
added this
4 years ago
|
4 comments

select your country

Community Spotlight

TAGS

tagged w/ Global Economy

top videos

find current on tv

find current online

recent comments

© 2012 Current TV, LLC All Rights Reserved

the basics

follow us online

tools

stay in touch

© 2012 Current TV, LLC
All Rights Reserved