Tuesday, June 23, 2009

Why isn't the price of oil skyrocketing?

Remember last year at this time, and for the quite a while before that, when our crazy dictator friend over in Iran would say something nutty? The price of oil would shoot up about $4 each and every time he insisted he needed nukes, or that Israel had no right to exist, or many of his crazy pronouncements. The market was sure there was going to be trouble, so they bid up the price. When the trouble didn't come, the price never dropped until the peak price late last summer. And anything crazy from our other nutty friend in Venezuela would have the same effect, as would the mere mention of a tropical storm.

Thus my question at the top of this post. Why, now that Iran is having an uprising that threatens to turn into a revolution, is the price of oil not going through the roof? This conflict is certainly not going to increase oil production. And Nigeria is near civil war, and the workers in Venezuela are threatening a strike because they have not been paid. What gives?

Some ideas:
1) The market was sure the hawks in the Bush Administration were sure that Iran would be attacked any time, while they know that Obama has no interest in starting a war with Iran.
2) The market fears a decline in oil consumption based on the worldwide recession as much as it does a disruption due to revolution in Iran.
3) Many of the speculators, particularly hedge funds, who were in the oil market last year, perhaps using borrowed money to buy futures, lost their asses when the oil price plummeted, and are gone. Those who are still around are less able to borrow or use other leverage to speculate.
4) Some combination of the above.

I don't have an answer, just a bunch of hunches. Anyone else have an opinion?

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