Get used to high oil prices: King

[palilover 1]

Someone's got an attitude;) But anyways, I'm finding it stupid how "speculation" leads to such things as econmy/recession/high oil prices. Why are we being led on "speculations?" And just how much is this oil tax anyways?

http://www.arabnews.com/?page=1&sectio...;m=7&y=2008

EDDAH: Custodian of the Two Holy Mosques King Abdullah said yesterday that the current oil price was cheap compared to prices of alternative energy products available in the world and called upon people in consuming countries to adapt with rising oil prices.

“We have nothing to do with the current sharp increase in oil prices,” the king said in a wide-ranging interview with Kuwait’s Assiyassah Arabic newspaper, and asked consuming countries to reduce tax to cut prices. “Consuming countries should reduce taxes of petroleum products if they really wanted to soften the burden on consumers,” he said.

King Abdullah attributed the hike in prices of some essential commodities in Saudi Arabia to developments in other parts of the world. However, he said Saudi officials have viable solutions to tackle the situation.

“We have also made plans to curb rising inflation through the optimum utilization of the Kingdom’s financial resources and sovereign funds,” he said. Annual inflation in the Kingdom reached 10.4 percent last month.

He said Saudi Arabia has always called for a reasonable price for oil, without causing harm to consumers as well as producers. “We adopted this policy to protect the interest of the whole world,” he added.

The king said producing and consuming countries should find out the real reasons for the unprecedented increase in oil price that has crossed $140 per barrel and should deal with them in a clear and transparent manner. He said there was no point in accusing the Organization of Petroleum Exporting Countries for the rise in prices as the prices are not determined by OPEC but market factors.

OPEC President Chakib Khelil, meanwhile, said his organization was concerned that future demand for oil might not be strong enough to justify investment to boost oil production. “The concern we have is about the security of demand,” Khelil told delegates of the World Petroleum Congress in Madrid.

He said there were “big uncertainties” about making huge investments in infrastructure to increase output from OPEC member countries, which pump about 40 percent of world oil. “I don’t think anyone questions that we have enough resources, the issue is if we are able to supply it to the market,” he said.

Khelil stressed that financial market turmoil, which has led to projections of lower global growth and a possible recession in the United States, had already had an impact on investment in oil production and refining.

In his interview, King Abdullah blamed speculators, increase in consumption and growing energy taxes for the high prices. He said he did not believe that an increase in output would stop speculative trade. “Speculators believe that oil prices will remain high and these viewpoints do not concern us as producing countries. We present our products in world market in accordance with real prices, whether they are high or low,” he explained.

Shifting away from oil, King Abdullah called for expanding economic cooperation between Gulf Cooperation Council states.

— With input from agencies

[Dan J 277]

If you dont understand the effect speculation can have on a market read this:

http://en.wikipedia.org/wiki/Speculation

Speculative purchasing can also create inflationary pressure, causing particular prices to increase above their true value (real value - adjusted for inflation) simply because the speculative purchasing artificially increases the demand. Speculative selling can also have the opposite effect, causing prices to artificially decrease below their true value in a similar fashion. In various situations, price rises due to speculative purchasing cause further speculative purchasing in the hope that the price will continue to rise. This creates a positive feedback loop in which prices rise dramatically above the underlying value or worth of the items. This is known as an economic bubble. Such a period of increasing speculative purchasing is typically followed by one of speculative selling in which the price falls significantly, in extreme cases this may lead to crashes. Overall, the participation of speculators in financial markets tends to be accompanied by significant increase in short-term market volatility. This is not necessarily a bad thing, as heightened level of volatility implies that the market will be able to correct perceived mispricings more rapidly and in a more drastic manner.

In the case of the current oil market, by itself speculation does not account for a huge increase in the price of oil. But coupled with other factors such as a weak dollar, and geopolitical instability with Iran and Niger, the effect of speculation can grow exponentially.