naked capitalism: Quick Summary of Soros Testimony on Oil

naked capitalism: Quick Summary of Soros Testimony on Oil

For oil, Soros said that the price appreaciation resulted from four factors:

1. Declining productivity of existing fields and increased cost and difficulty of finding new oil fields

2.
Backwards sloping supply curves in supplier nations who deem it
attractive to defer development of oilfields when prices are high and
appreciating

3. Increasing demand from countries such as China
and India which are growing rapidly but also subsidizing the price of
oil and thus not presenting buyers with true costs

4. The role of index investors

Soros
stressed that there would have been increases in oil prices without
speculative factors, which are acting on top of an upward sloping
curve. While he said that curve had become parabolic, which was a sign
of a bubble, he said he did not expect prices to fall soon (although he
did say that when bubbles break, the reversion is sharp). He mentioned
softening demand from emerging markets as a possible trigger.