As institutional investors, pension funds, and hedge funds sought refuge from inflation and looked for diversification, they poured trillions of dollars into commodities. When the dollar loses value, commodities priced in dollars become cheaper for holders of other currencies, increasing demand.
Demand Side 2008 Oil: How Financialization and Speculation Drove Prices
This "financialization" of oil transformed the market, where the price began to reflect not just physical supply and demand, but also massive speculative bets on future inflation and geopolitical risk. Traders worried about supply disruptions in the Persian Gulf, and this fear allowed for a "risk premium" to be added to the price of every barrel, regardless of actual shortages.
The Inevitable Correction While the fundamental factors of peak oil and rising demand provided the foundation for high prices, the market’s extreme volatility in 2008 made the spike unsustainable. The Brent crude price fell to below $40 by December of that year, demonstrating the violent duality of a market driven equally by physical scarcity and financial euphoria.
Demand Side 2008 Oil: Analyzing the Surge in Financialization and Physical Demand
These economies were consuming vast quantities of energy to power construction, manufacturing, and transportation. The Geophysical Reality of Depleting Oil Fields At the core of the 2008 price surge was the fundamental physics of resource depletion.
More About Why was oil so high in 2008
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