Should Oil Be Trading at $60 or $150?

Can the price of oil be blamed on commodities investors and futures traders artificially driving up values? While the price of crude oil was surging past $100 a barrel last week, Philip K. Verleger, Jr. was busily penning his latest letter, “Notes at the Margin,” to the clients of PKVerleger LLC. Clarence Cazalot Jr., CEO of Marathon Oil, was in Verleger’s lede and on his mind.

Cazalot has firmly planted the blame for oil prices on the heads of futures traders and “the premium as to perceived instability in the world. If we bought and sold crude oil purely on principles of supply and demand, there’s no question in my mind the price would be lower than where it is today.”


This did not set well with Verleger, a staff economist at the Council of Economic Advisers (1976-77); director of the Office of Domestic Energy Policy at the U.S. Treasury (1977-79); and senior research scholar and lecturer at the School of Organization and Management at Yale (1979-82). A prolific writer, Verleger has also researched and authored several books about the energy industry, including “Adjusting to Volatile Energy Prices” (Ballinger Publishing, 1993) and “Oil Markets in Turmoil” (Ballinger Publishing, 1982).

“There are at least two fundamental reasons that explain the price rise: fear of inflation and the growing squeeze on sweet crude supplies,” wrote Verleger. “The more important factor is the fear.”

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