The European economy is picking  up  slowly , or perhaps not at all,  and the  menace of a financial run against the weaker countries  is still there.  Unemployment is still there , also, in Europe and in the US, and possibly increasing in Europe, due to the reduction of public spending,   and  the consequently sluggish demand. The US companies, which are competitive in the European market,  due to the dollar being weaker than the Euro, seem to put all their hope of survival in reducing the labour force,  whose total cost is  possibly below ten per cent of the total.  The situation looks increasingly as if there were a “Conspiracy Not  To Hire” respected by all producers.

 However, the stagnation  of the West is not preventing increase  of  world   demand   for raw materials, pushed up by the growth in  China ,  India and others . Some rare minerals used in  electronics  are already scarce.  The demand for oil, the raw material produced in  largest volumes,   is also increasing under the same pressure, notwithstanding the near  stagnation of oil demand in Europe and Japan. The OPEC producers  are tentatively    proposing prices  that  few years ago were considered  lethal for the world economy.  They want to avoid a new price shock,  but say they  would favour an increase , perhaps up to 100 dollars a barrel,  which they consider not  dangerous in the new  economic situation of the world.

At present there is no scarcity of oil  in the market ,  and  the OPEC countries   would probably be able to increase production ; but , of course,  they would rather prefer  increasing prices , obtaining the same income  while  keeping  some  oil underground for the future.  They seem, however ,  to be still uncertain , because they fear the competition of other sources of energy , like the renewable and nuclear,   and , above all , they fear a crash of demand,  something  that  has happened before , making huge holes in their finances.

 The other big player in this market, the   oil companies,  define themselves  as “ price takers “ , who buy and sell in the futures market not in order to  influence the  price, but only  to insure themselves – to hedge – against negative  developments – or so they say. Their position is , basically, not different from that of OPEC producers.

Point is that the oil producers are not the real price makers: the price of raw materials  are dictated minute by minute by  the futures market , following the  changes of demand and supply balance  for oil , but  also feeling   a much stronger push from the oscillations of the volume of capital that enters in such  markets looking for  a quick profit. The rate of interest being still quite low, anybody can get money and play for speculative gains in such markets: and the big banks have not been the last to take advantage of it. We will therefore have an increase of the flow of money playing for more money in the futures markets, and especially on the  crude oil  ones.

What if the price of crude oil increases, pushing along other raw materials, and the futures market creates   a speculative peak , and, again , another  price shock?  We would have at the same time inflation from raw materials, sluggish production, unemployment, and  declining  demand for  goods and services : a nasty mix indeed.  This serious danger comes from the fact that Western economy has not been changed after the recent crash. The banks keep doing what they were doing then, and increase their profits, the only difference being that  the building  and mortgage market  is  not  reviving,  and speculation  has to find other areas. 

However, the conditions  for such a situation are all there: cheap money, pumped by the State in the US  in   a desperate attempt  to revive the economy; a pressure of raw materials  and oil demand coming from the  East; oil producers who  would be quite happy to see their  price increased  being at the same time   able to  blame speculation  for it ;  futures market that  have become the most attractive   area for people playing with cheap money . Is it possible to avoid all this? Perhaps it is.  But it would require a different strategy  of the industrial companies ,  and the implementation of  some of the various proposals to reduce the influence of speculative markets ,  which were advanced after the big crash and have gradually disappeared  in the general financial bonanza  of the big banks.