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Don’t Need to Speculate Any More

It should be of little surprise that the banks lied to us back when oil prices spiked in the summer of 2008, hitting $147 a barrel. The banks, the Bush administration, the media, etc. blamed it on their old friends supply and demand — mainly demand from China and from Americans who wanted to drive ever bigger and more gas hungry SUVs. Even liberals fell for this, with cries of “peak oil”.

But the reality was much simpler. Investors — mainly speculators — drove up the price of commodities, including oil, looking for a relatively safe haven for their volumes of cash (since real estate was already tanking). This kind of demand is not real demand, these speculators don’t actually want the oil, they are just betting that the price will go up. And since more and more speculators were buying oil futures, the “demand”, and thus the price, did go up.

In other words, the price spike was yet another bubble, largely caused by speculators.

Why is this interesting now? Because newly published documents from WikiLeaks show that our government knew that. During the price spike, the Bush administration tried to get the Saudis to increase production, but the Saudis responded that demand for crude oil was actually down. In fact, they were giving big discounts to buyers of oil. How can the price keep rising if real demand is down? Because artificial demand from speculators was adding as much as $40 a barrel to the price of oil.

How did this happen? Before 2008, actual users of oil, including airlines, refineries, and other energy consumers were responsible for around 70% of all oil trading. But all that changed. The volume of speculative trading has grown five-fold, to where it today accounts for 70% of all trading.

And now the price of oil has risen precipitously yet again, and yet again we are being told that this is due to China, US consumption, and a new reason: unrest in the Middle East. But according to a document from WikiLeaks, Saudi Arabia has boosted its excess capacity from 2 million barrels a day to 4 million barrels, which more than covers any disruptions from countries like Libya. Speculators are driving up the price of oil and we are paying the price as speculators grease their palms again.



  1. Don wrote:

    I’ve been saying this for several years now. Every barrel of oil is sold several times with speculators all too often pocketing a tidy profit each time they’re sold until an actual oil user enters the picture. They, the actual oil users (meaning refiners), have their own ways of making a tidy sum, as well, but it doesn’t rely on artificial a commodity speculator. The oil producers (meaning the guys that pump the oil out of the ground), on the other hand, benefit greatly from the artificiality of oil prices. The only real losers are the poor schmoos that have to buy the end product. They (we), alas, have no tidy way of making a profit.

    Sunday, June 5, 2011 at 9:03 pm | Permalink
  2. Dan wrote:

    This is covered in “Aftershock” by Reich. The low taxes on upper income meant to create jobs is actually destroying jobs. Just think, this is “capital gains” taxed at 15%.(?) Oil is a good place to put money because there is no short term substitute, and like all addictions the long view has to be taken to beat it. “Drill Baby Drill” will only make the problem worse as oil companies gain even more influence in Congress (if that’s even possible).

    Monday, June 6, 2011 at 9:38 am | Permalink
  3. melior wrote:


    I would like to return this post as I believe it has a manufacturing defect. All the other posts above it on the page made me ROFL but this one just made my stomach hurt.

    Thanks for your consideration.

    Monday, June 6, 2011 at 2:14 pm | Permalink
  4. Iron Knee wrote:

    I will issue a full refund forthwith.

    Monday, June 6, 2011 at 8:33 pm | Permalink
  5. J. Anthony Carter wrote:

    Line the corrupt mutha fukahs against the wall and shoot ’em dead, dead, dead. Then, pick ’em up, put ’em against the wall and shoot ’em some more! Then, show the pictures all over the national news and say they paid the price for their treason against the American people and the Nation! Oh yeah, put Bush,. Cheney and Rumsfeld up there with them. All traitors die together!

    Tuesday, June 7, 2011 at 11:51 pm | Permalink

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