The US alone has transferred more than $700 billion a year to Arab oil states for the last several years. What, if anything, are they contributing to the solution of all of this? Wait let me guess, pointing this out is an egregious insult upon all of Islam.

The professor is WRONG. The dramatic increase in prices was caused mostly by speculators:

Data Raise Questions On Role of Speculators

By ANN DAVIS

August 15, 2008; Page C1

Data emerging on players in the commodities markets show that speculators are a larger piece of the oil market than previously known, a development enlivening an already tense election-year debate about traders' influence.

Last month, the main U.S. regulator of commodities trading, the Commodity Futures Trading Commission, reclassified a large unidentified oil trader as a "noncommercial" speculator.

As a result, the number of futures and options contracts held by traders counted as speculators -- those who don't have a commercial need to mitigate the risks of energy prices in their business -- rose to 49% of all crude-oil bets outstanding on the New York Mercantile Exchange, up from 38%.

They discovered oil on my grandfather's piece of land in Mississippi in 1948. They capped that sucker for over fifty years.

We will run out of air before we run out of oil.

Aug 19, 2008 “enjoy that sub $4-a-gallon gasoline while it lasts”

It's almost 8 months since you wrote that, and up until a week ago, gasoline was sub $2 a gallon. You ridiculed people in your columns who stated that housing prices would recover while they continued to fall, yet you did the same thing with gasoline.

"Nothing hurts us so much as what we know that isn't so." (Pogo?)

Reading the first several letters in response to this post by Andrew Leonard brings that adage to mind. Now I can not guarantee that my point of view expressed in what follows is correct, but I can absolutely say as a former securities dealer that it is apparent a great many people sorely misunderstand futures, options and what happens when speculators, well, speculate. On this front, the best low-brow illustration to clear things up may be the old Eddie Murphy/Dan Akroyd comedy, Trading Places.)

Anyway, the thing that truly undermines the "the speculators did it" argument boils down to one word: Storage. See, no matter what you speculate the price may be at some future date (whihc is what futures options are), unless you have some place to hoard massive amounts of the commodity (in this case, millions up millions of barrels of oil), then the only thing you get by speculating that the price will rise is a road to the poor house. Futures option/contracts have next to no bearing on the spot price of oil (or any other commodity) but instead are merely a bet as to what that price may be. If the actual delivery/spot price is lower than the futures price committed to by speculators, then speculators are bankrupt. Period. End of story. (See the aforementioned movie which used the frozen orange juice concentrate commodities as the contracts im question.)

Do the "the oil speculators did it" crowd have maps to these utterly massive storage facilities where these speculators put all that oil in order to keep it off the market and push prices higher? Do they know why speculators suddenly decided to cease their magic in controlling the markets and pushing prices higher? Cause if they don't have answers to both questions, they are simply wrong. Period. End of story.

See, we are in a period where, like it or not, the world's thirst for oil is at or near the world's ability to extract this precious substance. In a world of growth where the line between ability to produce and the demand for the absolutely essential product is slim with a balance that is only slightly positive, then we face a situation where anything at all that potentially disrupts that balance can cause massive swings (read "increases") in the price. That's just the way it works. If you think otherwise, you are incorrect. Period. End of story.

What happens when that balance is upset by a contraction in world demand via economies in contraction/collapse? Well, if you realize that what we are talking about here is demand destruction and suddenly that commodity which was in tight supply is abundant, you get the same massive swings as when supplies were on the edge of the ability to meet demand...only this time it works in reverse. Period. End of story.

Peak oil, not a peak as in "Oh my gawd! We are running out!" but a peak in terms of the ability to extract ever increasing amounts of oil no matter how many holes you drill, is a factor. I absolutely beseech anyone and everyone who wants to get a handle on what is at play here to view the video and/or text at this link:

http://www.chrismartenson.com/crashcourse/chapter-17a-peak-oil

You can also just click my signature. It's linked there as well.

Bottom line: Speculators may have played a small role in the rise of oil prices, but if they were in control, they'd still be at it. And in any case, the lack of facilities to hoard massive quantities of oil in order to keep it from market and drive up the price renders the entire theory fatally flawed.

A commenter over at Seeking Alpha (http://seekingalpha.com/user/240285/comment/353287) had a more concise take than my previous post:

Anyone who buys commodities in the futures market has to eventually sell that contract or take delivery. . . . [T]he US government tracks inventories on a weekly basis and there is no evidence of excessive hoarding.

Yes...(there may be)...a few large tankers slow-steaming out there on the high seas, but the volumes involved in tanker storage are simply not enough to account for $140 per barrel of oil.

[N]ow they are playing a different game . . . now that spot prices are below $40 per barrel. This will be to the advantage of the consumer, as it will bring down future prices. Seems to me the market place is working just fine.

So why did oil go over $140. The obvious answer is supply and demand. No one can deny that China and India, growing at over 10% annually, added greatly to world demand. No on can deny that it takes years for the supply side to react to high prices, due to the enormous capital expenditures required to develop oil producing properties.

And why did oil go back to $40. Again, simple:

1) That new supply came to market

2) high prices caused substitution and economization and reduced demand, and,

3) RECESSION!**

In the short term, oil is a highly price inelastic commodity, which makes oil prices potentially highly volatile.

All of that is exactly right. Now, if people really want to get a handle on what is going with debt, energy and the economy and what we may be facing, click on my signature and spend some time at the link. You may or may not agree with what you find there, but if nothing else you will be forced to think, re-think and re-evaluate much of what it is that you think you know.

(Just FYI, I am not affiliated with the linked site in any way. I stand to gain absolutely nothing. Best of all, the course I linked is absolutely free, very engrossing and very informative...though the short portion of a segment that deals with Social Security should in my opinion perhaps be ignored. Other than that, it's all good.)

**Another way to say "Demand Destruction".