At Least the Butler is off the Hook

There had to be a culprit – and it wasn’t Jeeves

According to today’s Wall Street Journal, it was the speculators who are to blame for this year’s run up in the oil markets.

The Commodity Futures Trading Commission released a report today, “The Accidental Hunt Brothers” which details the many liberties taken in the commodities markets to help drive the price of crude skyward. Such speculation, with hedge bets in the billions of dollars, helped force the market up by 50%.

The report also noted that in the first five months of 2008, crude advanced about $33/barrel as institutional and index traders infused over $60 billion into the commodity. Traditionally, larger users of fuels, such as the airline industry have held oil commodity positions as a hedge against higher future prices.

Once gasoline reached and surpassed the $4/gallon mark in July, gasoline usage dropping (even as the summer driving season began) and flush inventories of both gasoline and crude, speculators mostly left the market for greener pastures. The market met its resistance point and the crude prices have retreated.

The US government at all levels are going to have a field day as they look to level blame on someone. Of the many fingers pointed, they might as well have a mirror to point at too. An effective, common sense energy policy has yet to be presented since the Ford and the Carter administrations – when the genesis of the present-day oil concerns are rooted.

It would be naive for us to think that this is a permanent situation without the help of limits on investors in the crude market without regulatory oversight. Unlike other commodities, such as precious metals, crude touches everyone directly and indirectly. It cannot be served up as an open field for predatory motives.

Report Faults Speculators For Volatility in Oil Prices – WSJ.com