They can if they're outside US law; and OPEC is outside of our laws. If you don't like their pricing, then don't buy their product.

If they were a total monopoly, then we would have no choice but to buy the product, and if by instituting a monopoly they create a situation where a good necessary to our economy (inelastic) is ridiculously priced compared to the market price they work contrary to the common good, then we need to take out the monopoly using any means necessary. This is basic microeconomics.

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They're the hacks at hedge funds, pension funds, and investment banks. Since 2000, when the Commodity Futures Modernization Act passed Congress, their activities have been unregulated. They operate "in the dark" so to speak, buying oil futures contracts in huge volumes. Here is a telling quote from a Senate investigation on the subject:

"The large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil, driving up the price of oil to be delivered in the future in the same manner that additional demand for the immediate delivery of a physical barrel of oil drives up the price on the spot market. As far as the market is concerned, the demand for a barrel of oil
that results from the purchase of a futures contract by a speculator is just as real as the demand for a barrel that results from the purchase of a futures contract by a refiner or other user of petroleum."

http://www.senate.gov/~levin/newsroo...pec.062606.pdf

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"Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits." FDR-First Inaugural Address

I would be really impressed if these speculators did anything to the demand for oil when you compare that to what China can do. Their demand increases by 1.2 million barrels a day.

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Take it out? How? By offering a cheaper product to compete against them; then yes. By intervening militarily; then absolutely not.

If our liberal government would allow it. If only...

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That number approximates the increased demand worldwide per year, during recent years. It's less than 2 percent of total demand, which is appraoching 90 million barrels per day.

http://www.worldwatch.org/node/5666

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"Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits." FDR-First Inaugural Address

BEIJING (XFN-ASIA) - The International Energy Agency (IEA) said it expects China's oil demand this year to remain flat compared to its previous forecast at 7.59 mln barrels per day (bpd), before rising to 8.05 mln in 2008 and further to 9.96 mln bpd in 2012.

http://www.forbes.com/afxnewslimited...fx3893219.html

That is in barrels per day.

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I think you just confusing your numbers. Before you said of China, "Their demand increases by 1.2 million barrels a day." Think about your wording.

According to the World Watch Institute, which used the the U.S. Energy Information Administration, world demand increased by about that number last year. It went from 84.9 million bpd to 85.7 bpd.

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"Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits." FDR-First Inaugural Address

Let's imagine a scenario. You discover a pristine and healthy underground stream of water. You decide to bottle the water and sell them on the market since Americans are crazy about healthy aquifer. It cost you very little to produce it, so the bottles you sell on the market are pure profit.

However, one day, your local people begin to find out about the underground stream of water, and now they also want to bottle the water and sell it to the market. Since it cost them very little to produce, so they compete based on price. Now there are 10 people selling the water, and the price of a bottle of water crumbled to be equal to the marginal cost of producing an additional water.

As you can see, you made a lot of money initially when there was only you selling the water; but the profit declined proportionally to the increase of people selling the identical product and eventually it'd fall to the marginal cost of production if there are a lot of sellers. The only way you could sustain your high profit was to prohibit new comer(s), that way you can charge higher prices.

That scenario reflects one fundamental principle in economics, the most important factor determining profit is scarcity. In plain language, if you are the only game in town or close to it, hell yeah, you'll be reaping cash all over. However if other people could enter the market quite freely, then you might make a lot of money due to some sudden circumstances, but gradually, more people will notice the high price and jump on board and push the price down, subsequently the reduced profit.


Now, going back to the problem with speculators. If as you've said, hedge funds, pension funds, and investment banks etc are the speculators who are making a lot of profits, then they must have had some very good information and made a bunch of money out of it (just like the first guy who discover the underground stream of water). However, to sustain that high profit, we must determine whether the market for investing is competitive or not (in another word, is it easy for new investor to jump on board)? Correct me if I'm wrong, but the capital market is in my opinion quite competitive, I can just go online with as much as a few thousands bucks and jump on the bandwagon, forcing the profit down. Overall, yes those established speculators might have made a lot of money, maybe because they had better information then we do about the market but it's almost impossible for them to maintain that high rate of profit for long.

How about the oil and gas firms? Since, it's not easy for a new firm to enter the market (there are quite a few people who could muster at least a few billion dollars to start a new oil drill or to build an oil refinery), so they have scarcity. But is it enough of a scarcity to maintain a substantially high profit? Again, we have to consider how many oil or oil refiner firms are there. Again, please correct me if I'm wrong, I looked up in wikipedia and there are quite a few (more than ten) oil and oil refinery firms. These firms have some scarcity, but not that much to charge substantially high price since the market is fairly competitive.


The underlying driving cause of high oil price of today, in my opinion, is demand-shock rather than supply-shock like in the 70s or rampant speculation. The demand for oil has rapidly and steadily increased, outstripping the production capacity, driving the oil and gas price higher and higher. Again, it's easy to point fingers and blaming other people such as China or India or speculators or the OPEC, but I think the biggest culprit to blame here is ourselves, Americans, with our excessive consumption with little awareness of conservation.