As the Mercury Climbs, Will Oil Prices Do the Same?
Summertime is here, and with it usually comes escalating oil prices. Or will they this year?
It's a topic of some debate lately. Oil bulls point to the usual summer price bump, plus current factors beyond seasonal ones, like OPEC infighting and the continued political unrest in the Middle East. Add to that the specter of "peak oil" and the voracious demand for oil from China and other developing nations, and you have a bunch of arrows all pointing to upward pressure on oil prices long-term. Counterbalancing the usual seasonal price movement somewhat, it's often argued that high unemployment leads to fewer summer driving vacations, muting demand.
It's the mid- and short-term, however, where oil speculators really disagree as to price trends. As economists like to say, "In the long run, we are all dead." In the long run, yes, oil will become more scarce and, for a time, correspondingly pricey. But oil bears are quick to point out that, right now in mid-2011, the U.S. economy can't shake the pernicious effects of the Great Recession. Rising oil prices can only further hinder recovery - which may invigorate oil speculators to seek out more unconventional oil sources, like the oil sands projects coming online in Canada and elsewhere.
(Incidentally, if you've ever shaken your fist at the crazy price gyrations oil speculators make for the rest of us, you might be interested - or incensed - by this Seeking Alpha article by contributor Kent Moors, Why Oil Speculation is Actually Necessary. His arguments are very similar to the ones I've heard defending short selling, namely that speculators on both buy and sell side promote better price discovery, add market liquidity, and generally keep market action well-lubed. Ha! Pun intended.)
As we head into what may be the Staycation Summer II (or is it III?), where do you see oil prices headed next?
[image: Oil by ollesvensson on Flickr]
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