Basic Finance

A Sloppy 60 Minutes Segment on Oil Prices

Seems the point of the 60 minute piece was that supply and demand was not the most significant driving force behind the price swings of the last few years. The evidence presented...that supply was increasing at the time demand was decreasing while prices were going up seemed to be a pretty convincing argument and nothing I have seen here contradicts it:

1) Oil is priced in US Dollars.......OK so the stats should have been priced in some mixed basket currency. This might smooth out the swings, but it certainly doesn't EXPLAIN them.

2)Over the same period that Oil prices were rising, the US was fighting two major wars in the Middle East, Iraq and Afghanistan......Hmmm do the prices actually move with any war related stats? Death toll? Oil fields blown up? NO. Did we stop fighting these wars at some point in the last year? Not sure how that situation could lead to skyrocketing prices and then also lead to the recent price collapse.

3) Energy prices rose during an economic expansion (fueled by low rates and cheap money)....And now that we have lower rates and cheaper money...??? Prices fall?? Not sure I get that. If what you are arguing is that PERCEPTION of future growth drives prices, then you are actually agreeing with 60 minutes. If speculation isn't driven by the expectation of future oil prices, I'm not sure what the word means.


4) Since 2001, Commodities of all sorts rose significantly: Steel, aluminum, cement, foodstuffs, precious metals, etc. Were they all driven by speculation, or was something else going on?

.....I'm pretty sure 60 minutes was arguing that all commodities were being inflated due to speculation and that oil was the most obvious example...so Yes...they were all being driven by speculation.


5) Since the 1% Fed funds rate of 2003, inflation has had a dramatic impact on ALL prices — from medical costs to insurance to education to health care to housing to food and energy. That 60 Minutes failed to even mention inflation in a piece on Oil prices is a terrible oversight on their part........Oh so inflation increased prices 3x during the bubble? Aren't you putting the cart in front of the horse? Wasn't a lot of the actual price inflation DUE to the increase in oil prices? Do oil prices track well with any measure of monetary policy? Didn't think so.

6) Throughout the 1990s and 2000s, cars were increasingly replaced with SUVs and trucks. These got appreciably worse gas mileage, as the total US miles driven rose. Hence, increased US demand for energy accompanied increasing prices....... 60 minutes cited DEMAND. If you disagree with the stats, fine, give us another source, but it doesn't really matter what people do in cars since the measure of overall demand would already account for whatever people are doing with their cars. PLEASE. 60 minutes is wrong because they didn't specifically note the Bobby Joe bought an SUV! I'ts already in the stats for God's sake.

I'm sure the last few points were equally petty...I just don't have time to go over them.