Oil prices top out; thank your local speculator
The recent run up in oil and gas prices has politicians and some misguided analysts blaming speculators for the higher price. Well, the truth is that speculators, by their active participation in the marketplace, actually kept prices lower. Despite the surge in hedge fund participation last week, oil prices seemed to have topped out short-term, and we saw the price pull back. You see, the reason oil prices did not go to $120 a barrel and gas to $4.00 a gallon is that speculators assumed the greatest risk to global oil supply since the absence of that sweet Libyan crude. We have had Europe embargo Iranian oil, and then Iran embargo them back. We have worried countries in Europe and Asia scrambling for real barrels of oil and hoarding it in case they get cut off if there is a war. The only thing that may slow that process is the higher price. The higher price starts to ration supply so that indeed if there is a cutoff in supply, there will be enough oil to go around. If prices stayed low then someone might try to buy a big chunk of supply and hold it off the market. This in turn could create shortages and tensions between the haves and have-nots.