Oil price speculation

There's lot of talk about curbing speculation in energy markets.  Simon Johnson has an excellent post on this topic:  He writes:

1) They are trying hard to talk up the market, with regard to global growth.  At the same time, the hard data continue to disappoint.  Naturally, this causes volatility in oil prices.

2) They claim to see no link between their failure to converge on
climate change/environmental policies and what happens to energy
prices.  The extent to which industrialized countries’ effectively
control carbon emissions will have a big impact on the longer-run
demand for oil.  Flip-flopping on this issue discourages investment in
the energy sector (regular and alternative), and thus directly and
indirectly contributes to oil price volatility.

3) The very cheap money policies of leading central banks, including
the Fed, the Bank of England and arguably also the European Central
Bank, lower the funding costs for big players who want to take large
positions in commodities markets.  Essentially, we are providing the
credit that makes big speculative positions possible.  Add to this mix
a “too big to fail” attitude and a “yes we can, recapitalize through
trading profits” deal with policymakers, and you see why major
financial firms are likely to place huge commodity bets in the months

…The true speculators here are your elected representatives.


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