Were Oil Prices Based on Chinese and Indian Demand?
That’s it, if I hear one more pundit talk about the spike in oil prices over the last few years being due to large demand from China, India and other developing countries, I’m gonna puke.
Did these countries’ GDP all of a sudden go from 0-60 in 4.4 seconds and then stop in 112 feet (for the Tesla…let’s keep it green and cool)? It’s not like China and India were just created, and just as fast, dropped off the globe (by the way, the world is actually flat, apparently).
While I heard the increase in prices were due to Chinese and Indian demand, I really didn’t hear the same reason for the precipitous decline. I mean, oil prices drop by over 70% in one year. If the run up was due to Chinese and Indian demand, then the decline must be from them too, right?
No, the reality is that exchange-traded commodity prices are based on two supply/demand curves…supply/demand of the derivative traded, and the underlying supply/demand of the commodity. So in this case, I believe that the level of supply/demand of oil was different than the supply/demand of oil contracts. Honestly, in a normal cycle, this is sometimes called arbitrage. This would explain skyrocketing oil prices and the subsequent enormous decline.
The exact point is that, for some reason, the enormous rise and fail of oil prices was probably due to more speculators in the market than people credit. T. Boone Pickens, king of oil, predicted oil prices would go above $100 in 2007 and was an investor in oil through his BP Capital. He’s sitting on the sidelines as prices drop, but is, once again, predicting oil prices above $100 in/around 2009.
He’s also pushing for alternative energy too, which is interesting for a traditional oil dude.
