I have maintained for a while that oil prices (and perhaps other commodities as well) are being driven higher not by the laws of supply and demand, but by the moves of speculators. This morning the Dow Jones news-wire reported the following.
OPEC member Iran is storing about 25 million barrels of heavy crude oil in tankers in the Persian Gulf. The country expects to move the stored crude by the end of the second quarter or early in the third quarter, an official from the National Iranian Oil Co. said Wednesday.
In other words, there is so little demand that they have completely used up their on shore storage capacity and don’t expect to clear this inventory until October. Clearly it is time for Senator Byron Dorgan’s Bill to raise commodity margin requirements. All of this talk from our President and others about third world growth being responsible for dramatically higher commodity prices is nonsense. It’s his old friends in the trading pits that are responsible for creating yet another bubble. Is it possible that our new reliance on finance (as opposed to production) as the engine of our economy requires us always to create speculative bubbles? First Internet stocks, then housing, now commodities.