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Those cagey oil speculators.

Published in Kansas City Star Midwest Voices Sunday, May 29, 2011 at 12:51pm

The Saudis, and now Obama, claim the run up in oil prices is due to speculators.

 Annual car sales in China have gone from 1 mil to 16 mil in the last decade. Are speculators running up the price of cars? No, because they know higher prices would bring on more car production and undermine the price rally. Oil is different because the price can go to $200 but geologic constraints limit output.

Yet conventional economics falsely treat cars and oil the same. This is a significant flaw in our system.

Smart speculators are indeed on the long side of the oil market. Because they understand global oil production capacity is bumping up against its limits. But their ‘front running’ is a good thing. They are preparing us for the $200/ barrel oil and $7 / gallon gasoline yet to come.

This isn’t a theory. We’ve had sky high oil economics since 2005. Yet global oil production has plateaued. Next comes the decline.

Instead of blaming speculators we should be digesting this as a wake up call. These escalating oil prices are telling us that our economics of plenty are now getting trumped by basic geologic depletion. Our American lifestyle is unsustainable. We’ve consumed past the ability of this finite world to supply us.

Squawking about speculators won’t help.

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