Sunday, June 15, 2008

Pump You Up!

The Saudis are going to increase oil production by several hundred thousand barrels a day. Due to the dramatic increase in price over the last several months, usage of oil, around the world, has actually decreased. According to the law of supply and demand, prices should be on the way down.

The reason this is not the case is that investors, unable to milk their usual victims for profit, because of the global economic contraction, have turned to commodities speculation to make their nut. This has caused the prices of food, energy and raw materials to skyrocket, exacerbating the already deteriorating economic environment.

So, why are the Saudis increasing oil production. The simple answer is, that as more speculators want to get in on oil speculation deals, there is a shortage in the inventories of oil that the speculators need to hold, in order to drive up prices to the maximum extent. The Saudis realize the benefits of providing more oil for speculators, just like a casino is always anxious to sell more chips to impatient gamblers. At the same time, they reap a public relations benefit by seemingly providing more oil, to a world market in need. The test of this is simply to observe whether the price you pay at the gas pump goes up or down in the coming months.

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