[Marxism] Oil prices skyrocket

Louis Proyect lnp3 at panix.com
Fri Jun 6 12:43:25 MDT 2008

NY Times, June 7, 2008
Oil Prices Skyrocket, Taking Biggest Jump Ever

Oil prices had their biggest-ever jump on Friday, after a senior Israeli 
politician raised the specter of an attack on Iran and the dollar fell 
against the euro.

The gains on Friday capped a second day of strong gains on energy 
markets, and fueled suspicions that commodities might be caught in a 
speculative bubble.

Oil futures surged more than $10, or almost 8 percent, to $138 a barrel, 
in afternoon trading on the New York Mercantile Exchange. Friday’s rise 
followed a 5.5 percent jump on Thursday.

Even as uncertainties abound about the fundamentals of the market, 
geopolitical tensions in the Middle East regained center stage after 
Israel’s transportation minister, Shaul Mofaz, said Friday that an 
attack on Iran’s nuclear sites looked “unavoidable.” Iran is the 
second-largest oil producer within the OPEC cartel and any interruptions 
in its exports could push prices higher levels.

“The return of the Iranian risk premium calls for a careful assessment 
of the potential oil supply impact of military strikes on Iran,” said 
Antoine Halff, an analyst at Newedge, an energy broker.

The strong volatility in energy markets in recent weeks have continued 
to puzzle investors and traders. Prices keep rising despite a lack of 
shortages in the market, and strong evidence of lower consumption in 
industrialized countries. But investors seem to be caught in a bullish 
mood, focusing instead on perceived risks to future oil supplies and 
continued growth in oil demand from emerging economies that subsidize fuels.

The latest jump in oil prices also came as the dollar lost almost 1 
percent against the euro amid bleak economic news that fanned recession 
fears on Friday. The unemployment rate surged to 5.5 percent last month, 
the government said, the biggest increase in more than two decades.

Investors reacted to the latest forecast by a large Wall Street bank 
that oil prices would spike to $150 a barrel in the next month because 
of strong demand from Asian economies. Morgan Stanley said “an 
unprecedented share” of Middle East oil exports are headed to Asia.

Some analysts also said that the threat of a strike by Chevron’s workers 
in Nigeria could lead to “considerable” shutdowns of Nigerian 
production. A similar strike by Exxon Mobil workers last April, which 
lasted a week, reduced Nigerian output by 800,000 barrels a day, or 
nearly a third of the country’s daily exports.

A strike might delay the start of Chevron’s 250,000 barrels-a-day Agbami 
project, the country’s largest offshore venture, which is slated for 
June 15.

One view that has been gaining ground in recent months is that the 
commodity market is caught in a speculative bubble akin to the housing 
or technology bubble of the late 1990s. The notion is buffered by the 
fact the oil prices have doubled in 12 months despite a slowing economy.

That theory was raised by politicians in Washington and a slew of OPEC 
producers, who blame speculators for the staggering rally in oil prices. 
Speaking before Congress recently, George Soros, a prominent hedge fund 
investor, said the current oil markets presented some characteristics of 
a bubble.

“I find commodity index buying eerily reminiscent of a similar craze for 
portfolio insurance, which led to the stock market crash of 1987,” Mr. 
Soros said earlier this week. But he cautioned that an oil market crash 
was not imminent. “The danger currently comes from the other direction. 
The rise in oil prices aggravates the prospects for a recession.”

Jeffrey Harris, the chief economist at the Commodity Futures Trading 
Commission, who was speaking before another Senate committee last month, 
said he saw no evidence of a speculative bubble in the commodity market. 
Instead, Mr. Harris pointed out to a confluence of trends that have 
contributed to the oil price rally, including a weak dollar, strong 
energy demand from emerging-market economies, and political tensions in 
oil-producing countries.

“Simply put, the economic data shows that overall commodity price 
levels, including agricultural commodity and energy futures prices, are 
being driven by powerful fundamental economic forces and the laws of 
supply and demand,” Mr. Harris said. “Together these fundamental 
economic factors have formed a ‘perfect storm’ that is causing 
significant upward pressures on futures prices across the board.”

Oil prices had been weakening in recent days but reversed dramatically 
after the president of the European Central Bank, Jean-Claude Trichet, 
suggested on Thursday that the bank might raise interest rates. That 
pushed up the euro against the dollar and prompted investors to buy into 
commodities to hedge against the weaker American currency.

Gasoline prices have also been rising steadily. American drivers are now 
paying an average of $3.99 for a gallon of gasoline nationwide, 
according to AAA, the automobile group. In many parts of the country, 
like California, Connecticut and New York, consumers are already paying 
well over $4. Diesel costs $4.76 a gallon on average.

“I don’t know how else to say it, this is not a bubble,” Jan Stuart, 
global oil economist at UBS, said. “I think this is real. There is a 
whole bunch of commercial buyers out there who are spooked and are 
buying. You are an airline, right now, you’re scared. But I don’t see 
who would buy at these prices unless they need to.”

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