I do see it as an endictment of the entire commodities trading system. These are people who are, at best, professional gamblers. They product nothing. They doen't even transport or store anything. But they do syphon off a great deal of money for not doing anything except placing bets.

The FT article is a great read. Those speculators short oil lost big. That's the thing - there are speculators on both sides of this trade. I'm no fan of regulation, but at least it would give us some transparancy.

Why is oil traded on the commodities market? How does oil futures trading benefit anyone other than the people doing the trading?

Just like Hussein did in Iran back in '73. Remember? Maybe you don't but US and British oi corporations sure did, and they eventually hanged Hussein after a conviction from a kangaroo court in a war zone...

Be brave, President Bush43: Announce the immediate seizure and nationalization of all petroleum operations and resources.

How much was gas per gallon when Fat Tony appointed Dubya? I paid $4.59 a gallon this morning.

Nationalization. Think about it.

Lets say the US set a 55 mph speed limit nationwide (like President Carter did). Would the gas savings in the US alone be enough to off-set the 200,000 bpd by which world demand exceeds supply? How would this affect prices?

There's a big debate going on over whether the current high price of oil is driven by speculation. The obvious conclusion from the recently burst housing bubble is that it was driven, at least in part, by speculation.

The less obvious lesson is that speculation can go a long way before the bubble bursts.

With this newfound knowledge of speculative investment behavior, is it unreasonable for a greedy speculator to speculate that greedy speculation will cause oil prices to continue to rise to ridiculous levels for an extended period of time, before the bubble finally pops? After all, any of the housing speculators who were lucky enough to have sold at the peak of the housing bubble must've made a killing on their investment.

Let the speculation (and counter-speculation) commence [tongue in cheek]!

[Before anybody vilifies the greedy nature of speculation, please keep in mind that the basis of our economic system is the harnessing of greedy motive to advance the economy.]

Thanks for an interesting article, Andrew. I've got a question, perhaps one you can cover in a future post.

I haven't been following the blame-the-speculators camp very closely, but what I don't understand is where they think the speculators would put the oil. It seems to me that oil is different from stocks, in that it's physical, and different from commodities like gold, in that it is consumed. It is also consumed at high volume, and as commodities go, it isn't very value-dense; you can lose $1000 of gold in your couch cushions, but in oil that would fill your bathtub five times over. All the tankers in the world hold only a month's consumption or so, so it's not like you can just park it somewhere.

So how could speculators be having much of an effect on oil prices? Sure, they can have an effect on futures--that's all paper--but if that were the case, wouldn't that show up as spot prices being much lower than futures prices? Because when those futures contracts come due, somebody's got to take delivery. Either they sell that oil on, or there are a lot of full bathtubs somewhere.

The Gas Stations around the Country have had no difficulty supplying its customers.

This suggests, that although supply and demand are being met, that the stellar rise in recent years is related less to the supply or the demand of oil, but to the real value of oil.

Something happened rather dramaticly when we had our first manufactured price shock after Katrina, people didn't stop buying gas. Throughout this rise, people have continued to purchase gas at the same rate up until recently.

This suggests that the price of gas was highly undervalued at the time of the price jumps.

The current rise in prices has nothing to do with limitations in supply, if it were we'd see limitations in supply down the chain. If you recall the 1970's, when oil was scarce, gas stations routinely ran out of gas, because there simply was not enough gas to meet the demand.

What we are witnessing isn't specifically price gouging, but a price correction. The speculative bubble around oil will pop and likely sooner rather than later (trust me), however once it does, how much the price of gas goes down will be determined more by competition between gas stations than any centralized plan to lower or raise costs.

I fully expect the price of oil to crash some time in the spring of 09 if not sooner. Once a new administration is put into office, fear based speculation in comodities will likely subside at least to a point, and the price of oil will more closely represent real demand of end consumers for crude oil (refiners) the price of gas maybe not so much.

The utter collapse of the current oil futures market is inevitable. Either higher oil prices will cause more exploration and thusly more oil to enter the market (more oil with no higher demand) or lack of demand will cause a drop in end users of crude purchases leaving speculators holding oil they have no use for.

Once the bigger idiots get out of the market (futures markets based wholely on the bigger idiot principle), the people left in will lose their shirts, given the upward speculative pressure currently put on oil by investment houses pretty much gaurantees that when the bottom falls out it won't be pretty.

If gas stations don't run out of gas, there is no shortage, if there is no shortage higher prices mean a speculative bubble, and the bigger the bubble is when it pops the bigger a mess it makes.

that should be real value of gasoline, not oil

Is quintupling the prices of food we ship to OPEC countries. I bet we could survive with unaffordable gas for longer than they can not eat. Let's spread the pain around and see who blinks first.