Sunday, December 7, 2008

Where is the Thank You for Oil Speculators?

As the snow fell this weekend, my thoughts wandered to the balmy days of late June 2008. Oil prices were screaming higher and the US Congress took notice. In a series of painful hearings, oil executives were grilled about record profits and oil speculators were taken to the woodshed. Unfortunately, the speculators were not represented and could not defend themselves. This was fine with the Congress, since speculators were probably too busy manipulating oil prices to record highs. The Congress referenced the commitment of traders report (COT) as evidence that oil speculators were at work driving up oil prices; they showed charts that illustrated that as long positions increased, oil moved up almost 65%.

Indeed, looking at the COT data for 2008 it is easy to see that speculators increased their long positions ahead of the price spike in July. This was enough evidence for the Congress and even John McCain to publicly indict speculators without giving them the ability to defend themselves.

From October to November 2008, speculators once again increased their positions, except this time they were net short. During this time crude oil prices on the NYMEX decreased from $109 to below $50, over a 50% decline. The decline in oil prices may be the only bright spot in the current economic climate.

This leads me to my original question, where are the Congressional hearings thanking speculators for driving oil prices down?

Disclosures: none

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