The Good Old Days
I was thinking about the high price of gasoline lately (as I'm sure many people are), and it made me remember a picture I took a while back. I took this picture right here in North Texas in October of 1998. I remember thinking at the time that I didn't think I would ever see gas so cheap again, and I'm sure I won't from here on out. If only I had bought some oil futures back then...
posted by JC at 3:24 PM
1 Comments:
Anne,
I'm sure this is somewhat of a simplification, but basically futures are contracts to buy or sell certain goods at set prices at a predetermined time in the future. So if you think that oil will be $80 a barrel in six months but you can buy a 6 month future for $70, then you can make money at the six month mark. Or something like that. Watch some economist come on here and put the smack down on me!
The current price spike may be a temporary hike due to the convergence of the effects of Katrina on the Gulf oil production and the historically high prices around Labor Day. But long term trends will be up.
I would be interested to hear an argument why oil futures would be declining. There is this idea of 'Peak Oil' which states that oil production is basically a bell shaped curve because there is a finite amount of oil that can be pulled from the ground. Experts disagree on when we will hit the peak, but some people think that we are pretty close to the peak now (others think it won't be for another 20 years or more). Declining supply will result in increasing prices, as will an increase in demand from China and India as they become more prosperous (which is starting to happen already, especially with China). If there was a decline in oil price, I would expect that it would be only temporary. I would say that there is some profit taking by the oil companies, but I think that they know that oil is getting harder and harder to get, and they are passing on this cost to us now. They will have to spend more money to locate new sources of oil and pull it from increasingly hard to get to deposits.
Let's see, doing a little research brings up one article on why futures actually don't predict $80 oil:
http://economics.about.com/od/
theoilsupply/a/oil_futures.htm
So, actually I probably wouldn't have been able to make money on oil futures in 1998. Back then oil futures probably didn't predict $70 a barrel for oil. I have to say though, it seems very unlikely that oil will actually cost $57 a barrel in 2011 as the article predicts. Maybe I should buy some oil futures now!
It's also kind of scary to think about how totally dependent our economy is on oil. Everything from fertilizers to plastics to pharmaceuticals are made from petroleum byproducts. Just about every aspect of our modern life depends on oil, if we don't start figuring out some alternatives soon (and it may already be too late to not experience significant pain), we will be in deep shit when we run out of oil.
Holy shit, do I sound like a dime store economist or what?
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