5/22/2008 – Don’t Blame Speculators for High Oil Prices

Senator Joe Lieberman blames speculators for a big part of the commodity-price increases. He cites as evidence that the value of investment funds that aim to track the price of oil and other raw materials has risen from $13 billion to $260 billion over the past five years. Senator Lieberman and his colleagues are so worried that they are contemplating measures to limit investors’ ability to trade. 

Are investors really to blame for high energy prices? On the surface this is ludicrous. We would argue that there should probably be significantly more money in the oil trade. $260 billion dollars in a pittance in today’s world economy and roughly equates to the current market value of Microsoft. The real answer to explain high energy prices is less sexy: economics 101 – supply and demand.