Summary
Speculators are driving prices of gas and oil to irrational levels. This is driven by demand supply gap driven alone. factors like the weak dollar is definitely accentuating the rise. Comprehensive data like hedge fund’s $104 billion invested at the end of 2007 is significantly higher than the $73 billion in the first seven months of last year, according to data from Singapore-based Research Company Eurekahedge is proof of this conclusion. There apparently is no downside and prices are expected to rise only accentuated by the sinking value of the dollar. The matter of deeper concern is that stabilization of the price is clearly not in sight.Imports of liquefied natural gas are running at about 50 percent of year-earlier amounts and prices in the U.S. will have to rise to compete with Asia and Europe.
Analysis
We see a major threat to energy security for the US now. Will these fuel further recessionary trends in the economy driving a positive feedback loop of vicious cycle.The last time the same situation was face by the US economy was in early 1970s; it took over six years to recover, and there are assigns that the present crisis can take much longer unless there is a very serious effort by the government of US to work very extensively on a coherent and comprehensive energy policy which is focused towards energy security.Some steps which are needed to tide over the crisis are1.Restrict speculation by limiting liquidity available to hedge funds.2. Tie up the import of balance gas and oil to build a reasonable stockpile3.Have a large scale import of LNG4. Increase US price for import of LNG.
