Price of Oil: A Follow-Up

“You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run.” ~ The Gambler by Kenny Rogers

In a previous blog I wrote that one of the major reasons for the increase in the price of oil was due to capitalists who were speculating that the price would go up and were therefore helping to cause the price to indeed rise. Since that post the price of oil has actually dropped moderately. This recent change in price serves to further illustrate the complex nature of capital and its insatiable drive to reproduce itself.

To help understand this complex nature one can draw an analogy between capital and gambling. In gambling the ultimate goal is not to break even but to end the game ahead of where you started. The same might be said about private investment for the ultimate goal of capital is its own reproduction. Also, just as in gambling there is some degree of risk in most investment. Like gamblers, some investors are high rollers while others play it safe. Just as the gambler in the Kenny Roger’s song investors sometimes pull back and hold to defend their capital. Other times they will run from one investment and into another. While these tactics aren’t always successful generally long term investments have a consistent positive growth.

With the gambling analogy in mind we can therefore better understand the changes in the price of oil in the last few weeks. As the price skyrocketed there were repeated news reports of people beginning to conserve along with reports of a drop in consumer spending. Plus, there were promises made by political candidates for the promotion of alternative energy along with promises by both parties of increased regulation of the commodities market. All of this caused some capitalists to fear a possible drop in the demand for oil. Such a drop in demand along with new market controls could result in less gain or possibly even losses.

As oil became a riskier investment some capitalists ran from the commodities markets and into stocks for protection of their capital. But this fear wasn’t universal so some capitalists continued to invest in commodities while others decided to simply hold by neither selling nor buying. This conflicting pattern of run and hold has resulted in the observed moderate drop in the price of oil and the slight rebound in the stock market. In other words, the changes in the price of oil is due to the movement of capital in an attempt to protect itself and to try to insure its continued growth.

What will happen in the near future to the price of oil is anybody’s guess. While the dollar has gained in recent weeks it’s still very weak. Plus, the legal obligation of corporations to return dividends to their shareholders certainly hasn’t changed. What we can say with confidence is that the price of oil has less to do with supply and demand and more to due with the bizarre nature of capitalism.