Oil has dropped below $40/barrel, an astonishing (and troubling, if you ask me) 75% drop in price in just six months. I'm sure you'll recall the uproar when prices were pushing $150, blaming speculators for pushing the price far higher than demand would justify. Well, at least one business journalist thinks that the price collapse is proof that the speculator outrage was all a bunch of hooie. To me, that makes no sense.
Every year, I love to read Fortune magazine's Dumbest Moments in Business. The writing is usually dead on, and plenty snarky and entertaining. But #18 made no sense to me. The author, Steve Hargreaves of CNNMoney.com, seems to be implying that speculators played no part in the spring's massive explosion in oil prices:
With oil prices skyrocketing toward their $147-a-barrel high in July, people smell a rat. Oil traders, hedge funds, Wall Street types...they're all to blame for artificially inflating the price of crude and reaping huge profits at the expense of drivers everywhere.
Or so the thinking (and Congressional hearings) goes until prices suddenly collapse throughout the fall, bringing oil down to about $37 a barrel. The culprit this time? Softening demand amid a reeling global economy. So much for thinking fundamentals don't matter.
So let me get this straight. Oil is cheap now, so that means there was no hanky-panky going on when it was expensive? Is this a position held by a sizable portion of the business media, or Hargreaves just "unique"?
It would seem to me that there is no better proof that speculators were indeed responsible for the lion's share of the oil price run-up than the way those prices collapsed the moment things started to turn south. That's what speculators do. When things are good, they pile on as fast as they can. And at the first sign of bad news, they abandon the sinking ship just as fast. Allowing speculators unregulated access to the market makes turns highs into booms and lows into busts.
If it weren't for speculators, we'd never have seen $147/barrel oil in June, and it would probably not be as low as it is today.
I mean, that's just common sense. Right? If not, I'd appreciate being schooled.
------RM