Can speculation really raise the price of oil in the long term?

It seems to me based on my basic economics 101 experience, that if the price of oil is pushed higher than what would normally be supported by worldwide supply and demand, then the artificially high price will cause demand to decline, supply to rise which would normally cause a surplus. Speculators would then need to add even more money into oil commodities to account for that surplus to keep the price high. Therefore for speculators to keep the price of oil above what is supported by supply in demand for any extended period of time, they would by necessity keep adding more and more and more money into oil. Since speculators pot of money isn’t endless eventually supply and demand will catch up and pop the speculative bubble.

Does anyone want to refute my analysis or support it? What do you think we have now (a speculative bubble or a real price increase in supply and demand) ? What is the reason oil has gone down /barrel in the last month?

2 Responses to “Can speculation really raise the price of oil in the long term?”

  1. buschgardens Says:

    Oil prices have gone up quite a bit in the past eight years. They started at $20 a barrel and are now up to $110 a barrel. This price is better than $150 a barrel but is still high.

    But oil prices should go down quite a bit soon. They’ve just discovered that Iraq has HUGE additional oil reserves. More than Saudi Arabia. They’re estimated at 350 billion barrels. The article is below.

  2. meg Says:

    Oil is sold for delivery and it is expensive to store once it has been pumped, so you can not have a speculative bubble like you can in gold of even real estate. However The supply is subject to interruptions and producers can decide to leave it in the ground which is free "storage", It is a non renewable resource so suppliers want to save some for future sale when the price is expected to be higher, so it is not a simple market controlled by supply and demand either. That is supply is not determined by the just the cost of production.