Bear Flag Blog

Oil prices have recently gone from a high of $147 a barrel down to $115. Of course, this is all up from $25 a barrel in 2002.

Now, as oil and gasoline prices began to pinch, various talking heads began to blame the high prices on "speculators". I largely discounted this position for two reasons:
1) It's obvious that global demand for oil has been increasing, supply has remained flat, and hence prices should rise.
2) The people blaming speculators tended to be Republican apologists, and as such are complete and utter liars and exceedingly prone to blame someone, anyone, for anything that people find uncomfortable, so long as that person is not themselves or the conservative idols at whose feet they grovel.

So I felt that the bleating about evil speculators forcing up gasoline prices was the usual right-wing effluent that emerges whenever the conservative media opens its mouth.

Well, I may have been wrong.

(About the role of speculators, not the nature of Republican apologists. Republican apologists remain wholly mendacious; even pathological liars accidentally speak truth now and then.)

However, as regards speculators: "The [Commodity Futures Trading Commission] now reports that financial firms speculating for their clients or for themselves account for about 81 percent of the oil contracts on NYMEX..."

Wow. 81 percent of the oil contracts are not held by firms actually wanting future delivery of oil, they're held by speculators. That's... impressive, and disturbing.

Anyhow, it's not a smoking bullet, and it remains true that the fundamental global economics of oil are forcing higher prices. But maybe the worries about speculators and their role on prices are not wholly misplaced.

On another note, my wife (a professional economist) observes that the very recent fall in oil prices coincides almost exactly with the Chinese Olympics. And China has, as you are probably aware, turned off large swathes of factories, banned half the cars from Beijing's roads, and in general is really fervently watching the Olympic games.

So, is the dip in oil prices due to the Olympics? Probably not solely, but I'll be watching avidly to see if prices resume their upward march after next week's closing ceremonies.