Wednesday, October 01, 2008

the oil enigma

Instead of being a blessing, it has become a curse. Rather than make people clap and rejoice, it makes them sad and gloomy for it made living harder than easier. What is supposed to be the engine of development is now the impediment to progress. Commodities are limited, their prices are high; gas pumps are unstable in their charges as gas consumers are worried about their expenses.

Furthermore, wars are waged and conflicts arise because of oil. There is no one in the world that is celebrating and laughing because of the significance and implications of oil. This is not even mentioning the fear and alarm allegedly caused by global warming due to much fossil oil burning the world over.

There is one particular question that seems to be worth asking. It is the same oil man found under the earth. Man did not make it, much less put it where it is in different continents of the globe. Man simply pumps it out, keeps it in big tanks, distributes and sells it. Again, it is the same oil, found in usually the same places, drawn out from the same channels.

Now, why does it become very much cheaper or very much costlier from time to time, from one place to another—when, again, it remains in substance exactly the same oil from the time man found it, up to now that man consumes it?

For those who have no Doctorate in Economics, the answer is simply the famous law of supply and demand. The oil which remains abundant—with most of it still untouched in different continents in the world—should be cheaper because of more demand vis-à-vis abundant supply.

The claim that the quantity of oil is limited is not a profound conclusion since the world itself is not limitless. And if it were merely the profit motivation of big and small oil companies, it would stand to reason that their financial gains would be more, the cheaper they sell their oil. This would mean that said companies would have more buyers, and wherefore have more profits as well.

Hence, the question remains: What really makes oil cheaper or costlier?

Even those who have their Doctorate in Economics will agree that the eventual over-all culprit in the higher or lower oil price is plain and pure speculation. Between the oil producers and oil consumers are thousands of individuals who engage in oil trading—using nothing but their saliva, buying and selling nothing but oil prices, not oil itself.

Depending on bigger or lesser trading prices, oil becomes ultimately cheaper or costlier—with the oil remaining substantially the same. In other words, oil traders are those who primarily dictate oil prices in the markets the world over. Oil speculation—which actually means the calculated thought of increasing profits or lessening loses—is what gives oil its price.

This means that there is no “oil enigma,” just cunning, trickery or shrewdness in oil trading in the stock markets.

+OVCruz, DD
October 1, 2008