Oil and Investment Banks: Wrecking economies with hedge funds

I’ve been blitzed with stories all week about what is driving oil to $135 per barrel. Most of what I’ve seen are soundbites and short blurbs from the talking heads known as pundits. Numbers are rare, making it hard to discern fact from fiction. In this case, there seem to be three prevailing theories: The first is that supply is failing to meet demand, or will in the near future. The second theory is that a weak dollar buys less oil. The third is that speculation in oil futures have rendered supply and demand less relevant.

One thing in particular from a short Reuters article caught my attention: “Crude oil prices rocketed to record highs above 135 dollars on Thursday, driven by growing concerns that energy supplies will fail to meet demand, analysts said.” (emphasis mine)


Those four words – “driven by growing concerns” – are enough to convince me that speculation is playing some role in rising oil prices. Markets are often driven by rumor, and like all rumors, there’s usually little substance to the ones that sway markets. The question then becomes how much substance is there behind these “growing concerns” of an energy crunch?

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