Monday, May 4, 2009

Oil and Commodities Speculation Begins Anew

Speculation by funds, proprietary trading firms and investment banks led to a massive bubble in crude oil prices in 2008, when US crude oil rose to just over $147 a barrel. Commodities went along for the ride, high on the prospect of unlimited Chinese and Indian demand. The huge spikes in these prices may have been the straw that broke the economy's back. Energy-gobbling Americans started to feel the pinch of $4 plus gallon gasoline. Foodstuffs got more and more expensive. When consumption dove, prices went with it.
But the so-called rapid recovery from the recession is sending the speculators back into the ring. Credit markets are loosening up. Equities are buoyant. Spring has sprung and everybody feels good. Crude oil started the year at around $44 per barrel and has already gained about $10.00. Demand is still in the toilet, so one can only imagine that the speculators are once again running these markets. If they manage to drive oil prices up again, and gasoline approaches $4, the rapid recovery will be over. (Still, this plays right into my hands. The novel I am writing is about corruption and speculation in the oil markets!)

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