Follow the Money

It has been an interesting week in the world of energy. Oil got up to $112 a barrel and (on a personal front) my local fuel oil supplier just raised my #2 fuel oil price to $4.19 per gallon . That is triple what it was just three years ago. Not a pretty picture. What I find interesting is that all of the media energy experts seem totally baffled by all of this. I was watching CNN a couple of days ago and they kept commenting upon the fact that U.S. oil reserves are at a 5 year high and there is currently no shortage of supply. Standard economic theory would suggest this price rise just shouldn't be happening. It would be easy to just chalk it up to a single word "GREED" but I suspect the real answer is a bit more complex than that. I suspect closer to the truth is the fact that while the oil company's won't admit it (peak oil ... what peak oil) the people with the money have realized that oil is a commodity that is rapidly running out. This isn't a short-term play, this is a long-term play.

Commodities, including oil, have been on a roll lately and I believe that is because there are investors out there who have enough money to truly think in the long term. Long term financial strategies call for buying things that will run out while they are still cheap so they can charge exorbitant prices when the supplies start running out. Oil is now in that category and so is being boosted by long-term speculators. So don't let the oil companies tell you that we have not yet started to run out of oil. The guys with the big money know better. Just follow the money!