Friday, June 27, 2008

Will Criminal Cases Follow Oil Speculation?

Around a decade ago oil cost around $11 a barrel, now it is hovering around $150. Was there almost a fifteen fold decline in its availability or a similar increase in its demand? Why is there this huge disparity in just ten years? How does it seem like just yesterday that the major headlines for a week was oil breaking $70 a barrel for the first time in history?

The massive increase in the cost per barrel has led to charges of "speculation" and "price manipulation." Some are even beginning to use terms such as "criminal" because of the enormous economic impact due to lost jobs and high prices.

Whether or not they take the extreme move of making this activity "criminal" (like Sarbanes Oxley did with accounting), it is still too early to say; but I think it is safe to assume that some are going to try to figure out ways of pursuing civil action. How, I don't know, but the situation is very hostile for those in this business.

Can the actions of those who set these commodity prices be defended? Let us, just for a minute, give them the benefit of the doubt. These prices aren't made simply on the basis of current supply and demand, but also the future. There is little doubt that supply won't likely increase any time soon, especially with the Democrats in Congress making it perfectly clear they have no plans to let bill that incourage such pass. And demand? Ten years ago, China was a non-player in oil consumption, today it is the number two consumer in the world and growing. Over 1,000 cars are added to its roads daily and demand increases by almost 10 percent annually. It is safe to assume this demand is only going to continue or increase. There has been a comparable increase in demand by India and other developing countries in recent years. These too have driven prices.

I personally think the rise in the cost of oil is not nearly as "wild" or "speculative" as the media would like one to believe. Those who are crying such are typically the same people who are undermining our efforts to increase supplies. Unfortunately, I don't expect reason to prevail, but vengeance. I'm sure that will do a great deal to lower gas prices.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

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