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Is speculation driving oil? Add to ...

Although the price of crude oil has fallen about 15 per cent from its near-term high in June, the price is still about 80 per cent above its low in late 2008 when the fear was that the global recession would park every lawnmower and snowblower. So is oil up or down?

Paul Krugman , the Nobel-winning economist and New York Times blogger, noted that although speculation didn't seem to be a big factor in oil's meteoric rise last summer - since physical witholding of oil from the market wasn't happening - that's no longer the case.

"This time, oil inventories are bulging, with huge amounts held in offshore tankers as well as in conventional storage," he said on his blog. "So this time there's no question: speculation has been driving prices up."

Of course, there is another reason why investors would be parking their oil. As Mr. Krugman acknowledges, investors could be betting that energy prices are about to spike with an improving global economy, in which case it would make sense to buy oil on the cheap, store it, and then sell it some time in the near future at a handsome profit.

However, with signs of an improving economy still out of sight and global stock market indexes swooning on concerns that the global recession could last longer than expected, this bet bullish bet on oil looks off side. On Wednesday in late-morning trading, crude oil traded at $61.54 (U.S.) a barrel, down $1.28.

Follow on Twitter: @dberman_ROB

 

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