Oil prices are higher than they should be. Supply is up. Demand is down. Other than Iran, there is not much in the way of fear that would spook the speculators.
Once Again, Speculators Behind Sharply Rising Oil and Gasoline Prices [McClatchy/Truthout, 2/22/2012]
Historically, financial speculators accounted for about 30 percent of oil trading in commodity markets, while producers and end users made up about 70 percent. Today it’s almost the reverse.
A McClatchy review of the latest Commitment of Traders report from the Commodity Futures Trading Commission, which regulates oil trading, shows that producers and merchants made up just 36 percent of all contracts traded in the week ending Feb. 14.
So speculators have increased their market share. Let me see if I can take an educated stab at this.
If they are putting more money in the oil pot, then they must think that demand is low now, and will rise for Spring Break and the summer driving season. So they are banking on demand rising, and companies raising their prices like they normally do. Therefore they plan to make money from the increased revenue.
Or maybe there’s a plot to raise gas prices by flooding the oil market with speculators. Normally speculators are 30% of oil trading and now they are at 64%? Strange.
What speculators do not control is demand – and their plan could fail if the people decrease their demand based on high prices. $4.00 per gallon (in mid America) was where demand largely decreased the last time prices were this high.