Oil dropped below $40, standing at $36 and changes. That is lowest in last four years. Just a few months ago it was at above $150, and expected to go to $200. What happened? Supply and demand? Not entirely.
Remember a few months ago, no matter how much production increase OPEC countries implemented, the oil price just kept going up. Now it is the opposite: no matter how much production cut, the oil price keeps dropping. Yesterday OPEC leaders announced a huge production cut, 2.2M barrels/day, or 7%, after slicing 1.7M/day already in the past three months. Surprise, oil price dropped >9%. Go figure!
There are just too much speculative trading in oil by the Wall Street. It is creating tremendous volatility in oil price that is very bad for businesses. Same situation is happening to currency exchange. Dollar has gone from dog house to king's castle in a matter of past three months. A few months ago, one Euro can buy more than $1.50. A few days ago it went down to $1.27. And in last few days, it is back to $1.43. Volatility in basic materials and currency exchange is very damaging to global trade and business investments. When business cannot reasonably forecast their input costs and trading revenue (in foreign countries), how can they conduct effective business planning? They will often have to engage in expensive hedging plans to offset the uncertainties. That benefits the Wall Street but hurts economy.
We HAVE to regulate more the hedge fund industry and stop this type of crazy speculations that damage real people and real economy.
Subscribe to:
Post Comments (Atom)
Posts
No comments:
Post a Comment