I was in New York City for a few days on business and took the opportunity to talk to a friend who knows his way around the financial world. Inevitably the talk turned to the current crude price crisis.
This is a potentially catastrophic situation. If the price of crude continues to drive upward, we are all looking at the prospect of a radically altered world in which our daily lives will be very different and much more limited and in which the international scene will shrink in importance as countries turn inward in the search for stability and resources.
My friend is going to assemble the opinions of his knowledgeable contacts for a post on this subject but for the moment I would offe the following opinion.
The oil spot and futures markets are limited in size, limited by the actual amount of crude available within the timescape of the contracts. Investor money from institutions, pension funds, hedge and index funds , etc. is pouring into those markets as it flees from other investments that are not appealing at the moment.
An old army saying held that it is not possible to put 10 pounds of stuff in a 1 pound bag. Nevertheless, that is what all that investor money is trying to fit into at present. Is it really a surprise that prices are steadily rising?
A solution to this problem is not apparent. Since this is a process detached from short term supply, it would seem that there is no upside limit to how high the price per barrel may go.
Someone had better do something soon. pl