IS THAT AN OIL SLICK (STER)?

The capitalist system is dependent on several tenets that form its support and insures its continued health and vibrancy. The foremost among these is the law of supply and demand.
We are told that this relationship is one of the only economic laws that is absolute. To challenge this is looked on as sacrilegious.

In 1999 the price of a barrel of crude oil was $12.00. In less than a decade the per barrel price topped $147.00. We are told by oil companies, economists and oil producing countries that this dramatic increase can be explained and justified by the law of supply and demand. To account for this it has been pointed out that given no change in the supply, demand world wide, would have had to exceed 300% in nine years. While demand has risen in China and India, the worldwide demand has, in reality much more modest and it should be pointed out that supply has not remained stagnant.

The most obvious example that there is something else at work is the drop in price per barrel of crude from $147 to $123 in the 10 days since the lifting of the federal ban on drilling. With just the expectation of drilling, not adding a single barrel to the supply chain, we are witnessing a downward trend that even Venezuelan President Hugo Chavez predicts will stabilize at $100 per barrel.

Speculators have been targeted for scrutiny in the press and on capital hill. Congress is currently considering regulations opening up the process of commodity future trading including raising the margin limits to rein in what is widely regarded as as an out of control system. Those inside the futures trading community point out that their world is quite small and once a trend is started it can snowball very quickly.There is another player that requires even closer scrutiny.

Oil companies defend pump prices citing the supply and demand argument and further state that their profit margins have remained the same over the past 2 years during which the most dramatic increases have occurred. These claims have largely gone unchallenged. Not only do these assertions strain credibility on their face, evidence is mounting that revenues have been stratospheric supported by unprecedented stock price increases. It should be pointed out that these huge profits have come at a time when the companies have received large subsidies from the government.

Another question is why the price posted at gas stations across the country is changed upwards, often several times in a single day, on the announcement of a per barrel wholesale price increase while it takes several days after a decrease.

While supply and demand remain bulwarks supporting the economic system, it has to be recognized that the system is subject to manipulation and to other forces that need to be examined and understood.

The Edge







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