Slog News & Arts

Line Out

Music & Nightlife

« Pagliacci Gets Pranked | Also, Hillary Clinton: Never V... »

Friday, August 22, 2008

Oil Slavery

posted by on August 22 at 9:29 AM

For you, for now, the peak point of this short but stuffed article on the shadowy business of oil speculation:

It is in every oil supplier’s best interest for prices to go up. Oil is a finite commodity. The world will eventually become more efficient and develop alternative energy sources. In the meantime, suppliers want to squeeze out as much profit as possible from their limited resources. Even if they know that the price of oil is too high (to the point of reducing demand) it is not in their interest to correct it. By setting prices in the smaller but more “trusted” futures market, oil producers realize multiplied gains on their physical oil sales.

Prices in the futures market and, indeed, any real-life market on a standardized good do not form where actual supply meets actual demand; they form where perceived supply meets perceived demand. Participants in the futures market merely represent the world around them. A veil has been placed over the public’s eyes, and they accept this illusion of a fair price.

Unfortunately, the price set by the all-too-small futures market transcends oil to influence the entire American economy. Our oil-dependent economy is shaped by oil’s arbitrarily determined price. In many ways, oil has become a pseudo-currency. Similarly, with oil traded internationally in U.S. dollars, the dollar is pegged against oil. While squeezing American industry, high oil prices also devalue the dollar. With the state of our economy reflected in the price of oil, it has become a new standard for valuing America. We are slaves to this black gold standard.

RSS icon Comments


and yet futures markets have many good sides to them. do the research on the potential upside for participants in the future markets.

Posted by Bellevue Ave | August 22, 2008 10:23 AM

Interesting. But this is true of all markets: there is no such thing as "perceived demand." Demand inherently includes a perceived component.

Oil has been currency since day one. All paper money is now valued in oil. This has been true since the US abandoned the gold standard, and BBLs of oil were fixed to the US dollar, which is still the case, for now.

So go long on oil companies.

Posted by GK | August 22, 2008 10:46 AM

Well, that's sort of the whole issue, now isn't it B.A.? Futures markets may be good for those who directly participate in them, either as purchasers of commodities futures, or, as the entity holding the commodity (oil companies, in this case), but other than them, who does it benefit?

Posted by COMTE | August 22, 2008 11:47 AM

Charles takes a lotta crap (some deservedly so) but I gotta give props where they're due. This post at least implies the larger problems surrounding our dependence on oil, which goes beyond our material dependence on it for energy and hints at our reasons for resisting any movement away from a petroleum-based economy. We've been hearing about "promising new developments that may one day replace oil" for, what, thirty-plus years now? And yet, since the day Reagan moved into the White House and mothballed the solar panels Carter had installed, we've been told again and again that the day when we reduced our dependence on oil was at some far-off point in the future, way beyond the horizon, and in the meantime our consumption has steadily ratcheted upward.

The relationship of the dollar to oil as a commodity is at least part of why this self-fulfilling prophesy has come to dominate all discussions about the energy future.

Posted by flamingbanjo | August 22, 2008 12:17 PM

comte, in the end the consumer benefits because there are hedges against collapse for suppliers.

Posted by Bellevue Ave | August 22, 2008 12:45 PM

and futures markets prevent wild fluctuation of prices for the end consumer.

Posted by Bellevue Ave | August 22, 2008 12:49 PM

@6 - lol, you actually believe that?

Even the WSJ doesn't believe that - they estimate between 30 and 50 percent of all futures markets are speculators.

Maybe you need some remedial economics classes ... taught in the real world, where $4 million is not middle class and people don't typically own 7 or 11 or 13 houses ...

Posted by Will in Seattle | August 22, 2008 1:15 PM

Charles may be amusing (philosophy), annoying (religion), but he's downright stupid when it comes to economics. The quote above has *nothing* to do with speculation it has to do with suppliers. The article itself has *nothing* to do with speculators in the market.

@7: Actually, you're the one in need of a remedial ecomonics class. Speculators allow for liquidity between the time the contract is offered and the commodity is delivered. This helps smooth out huge price swings. Notice I said 'helps' not 'prevents' and people still chase rising prices when they shouldn't, just as they do on eBay for this or that fad.

Posted by eric sic | August 22, 2008 1:39 PM

yeah, fuck you will.

Posted by Bellevue Ave | August 22, 2008 4:07 PM

This is why I have converted my automobile to run on concrete. I filled the tank, and the mileage has been absolute. And, as a side benefit, it has been getting harder and harder, until, someday, I hope it will become impossible.

Posted by Capitalism- proud sponsor of Amanda | August 23, 2008 11:06 AM

Comments Closed

Comments are closed on this post.