Saturday, October 20, 2007

Oil Hit Everybody Hard

Yesterday, amidst intense speculative betting in the wake of frenzy tension build-up between Iraq and Turkey, international oil price, sensitive as ever to geopolitical upheaval, reacted with strong surge and touched 90 US dollars per barrel at NY Mercantile Exchange's oil futures contracts.

Although this run lacks fundamentals in rise to historical high and, therefore, is unlikely to be sustainable, it does signal to the world that cheap oil is really just a wishful thinking in this era.

Going at the present high volatility of oil price, inflation pressure is going to build up on the world economy, thereby threatening its growth.

In the world today, the key determinants of the oil price are no longer the simple balance of supply and demand and of risks to that supply it used to be in 70s and 80s.

Presently, the equation is considerably more complex.

Amongst others, it has been apparent that financial speculators are playing a larger role in influencing oil price. Hedge funds loaded with cash capitalise on geopolitically sensitive issues to make hefty returns on oil. Heavy bettings by punters have sent oil price to sky-high at the expense of consumers.

My goodness, when hedge fund managers walk away with huge profits, we have to live with escalating inflation.

The picture shows an oil well in operation - cheap oil is just a wishful thinking now.

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