Well yes, the declining production of benchmark crudes and attendant market narrowing can create greater tension between financially determined prices and number of actual physical transactions.

But, globally, total crude production (as C+C) can at most be said to have been on a roughly two year plateau, not ‘declining’.

Forget about seeing $100 a barrel oil.

Yes, the stimultive aspect of such subsidies is too often ignored.

Have you considered indirect subsidies such as that provided by the house price bubble, or, what trajectory might types of vehicles purchased and fuel use in the U.S. have taken without this?

Other hand, I remain unconvinced that physical supply/demand has been so determinant as financial effects in the forming of what are “market-related” prices.

You really ought to apply to be White House press secretary. An ability to skew facts like that shouldn’t go to waste.

Let’s see, China and India, the two most populous nations on earth, each growing rapidly, subsidize gas prices. But you manage to claim that this is really significantly the doing of oil producing nations and so doesn’t count. Even if all the nations subsidizing domestic purchases happened also to be producers, guess what? If it added up to enough demand in aggregate to make a difference, it would still distort prices.

As to “China doesn’t know what to do with its money” the money coming in is speculative capital inflows. Those create big time inflation. And they don’t as you imply, go into government coffers.

Subidizing gas is also stimulative. The Chinese are already very worried about inflation but seem unwilling to do what they really need to do, which is let their currency float. Most observers think they will cut gas subsidies post Olympics, that’s one of the most obvious measures they can take to cool off the economy.

A.) Oil-exporters (Saudi Arabi, Russia, Venezula, Iran, etc.)
B.) China

How many billions dollars in-flow did China see last month? They aren’t going to have to stop their subsidies in that situation. I don’t think the oil exporters are short on cash either. In fact I would submit that they are short on useful things to do with their money, and subsidizing oil is one way to keep inflation from insane levels.

Never one to pass up an opportunity to point out the absurd Fed policy of recent years, the Fed and FCB “put” may be one of the greatest bubble inducing inventions. The CBs provide liquidity for free in the form of negative interest rates, creating a stampede into commodities to avoid corrosive inflation. At the same time, they provide the speculative caboose with the longest possible lever, low margin requirements, and borrowed lever money at subsidized rates.

If that weren’t enough, they rush into frothy markets with emergency rate cuts and bailout packages, slaughtering the short side and promoting the “bull” only club.

Like GW’s Iraq policy, the Fed objectives changes with time and the situation. The initial reason for creating the financial bubbles through easy money policy was ” fighting deflation”. The current reason has morphed into preventing collapse of their favorite children, the easy money speculative crime family banks.

The present was ordained the day Greenspan, Rubin, and Sandi Weil decided over lunch to resurrect the banking trust of yore. Bernanke and company have ensured continuity.