Oil Insanity Pinned to Speculators

Observers call current market 'hysteria' — and 'bubble'
By Jonas Oransky,  Newser Staff
Posted Feb 28, 2008 5:54 PM CST
High gas prices are posted at Shell gas station in San Mateo, Calif., Thursday, Feb. 28, 2008. Crude prices rebounded Thursday, shooting up more than $2 a barrel to a new record as a falling dollar and...   (Associated Press)
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(Newser) – Crude-oil prices have doubled in recent months, a development not linked to fundamental supply and demand—but rather, observers tell Der Spiegel, to rampant speculation among investors looking for a stable buck. The prospect of recession would typically drive prices down, but analysts say a decade-old oil investment rush by pension funds and big banks has made the market volatile and distorted.

Speculators hold nearly half of all oil contracts, and trading volume is 15 times higher than consumption (due to massive futures contracts). Today’s investors react to miniature world events with roller-coaster rides, and they “will have a rude awakening” when they see how big a gamble they’ve taken. Der Spiegel is not so cavalier as oil barons about the impact of the speculating boom.