"Just how much oil prices are being driven by speculation became clearer yesterday as regulators revealed that Wall Street dealers, hedge funds, pension funds and other speculators hold 70 percent of the leading oil futures contracts traded in New York.
The price on those contracts continued to defy gravity yesterday, with premium crude closing near $134 a barrel despite trends that in the past would have weighed down prices, including falling demand for oil in the United States and a strengthening U.S. dollar. Oil’s seemingly relentless rise in the face of these trends has prompted charges that speculators have taken control of the market.
The latest estimate of how large the investor involvement in the market has become was provided by the Commodity Futures Trading Commission this week to the Senate Energy and Natural Resources Committee.
The commission previously said speculators constituted only 37 percent of the market, but at the committee’s behest, the new estimate includes for the first time the 40 percent of oil futures contracts held by Wall Street dealers who have taken advantage of a regulatory loophole for "swap dealers" provided by the commission.
"Even 70 percent may represent a low-ball figure," as it includes only trading in the most popular crude-oil contract on the New York Mercantile Exchange – the benchmark premium crude West Texas Intermediate, said Bill Wicker, spokesman for committee Democrats. " Washtimes
I offer the opinion that the "fundamentals" of supply, demand and all the other undergraduate economics concepts that we all remember from long ago do not adequately explain the pricing process that now prevails in the oil and financial markets.
Investment in oil futures is not criminal. It is not conspiratorial. It is merely another aspect of the oh, so clever greed game played in the markets of New York and London. Having operated on the fringes of that society of global "crap shooters" for a couple of decades, it seems very clear to me that all the expensively dressed and self assured youngish men who inhabit the hedge funds, etc. view the oil futures markets as just another sandbox to play in on the road to "making it big."
Yes. There are long term supply problems in energy that must be solved soon. No. This years craziness in the price of oil is not a clear reflection of that problem. pl