The Role of Wall Street Speculation on Oil Prices

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This article (via Manan Shukla) contains links to communications from Saudi officials about the role of speculation on high oil prices. They were concerned that high oil prices would dampen demand. The US, for example consumed more ethanol than Saudi oil in one period.

Until recently, 70% of oil future contractors were held by heavy users of oil products, such as airlines, as a hedge against price increases. Today contracts held by Wall Street speculators have risen by a factor of five. Speculators, who will never take delivery of oil, now hold 70% of oil future contracts. The high degree of speculation in the oil market means that the normal operation of supply and demand on prices has been distorted. Speculation will produce wider swings in prices than changes in supply and demand.

As one might imagine, the oil futures market is dominated by a few Wall Street banks and the futures are traded on unregulated exchanges. This means high profits for Wall Street banks and unpredictable oil prices. The Wall Street Casino business is a model of innovation. It never produces anything of value but it uses a large percent of the world's savings to wager on price swings in almost any commodity.