Money-grubbing sleazebags

No surprise here: It seems that the recent run-up in oil prices is related less to Middle East conflict or supply shortages than to outright greed on the part of oil traders speculating on anticipated higher prices:

In the past 10 weeks, the price of crude oil has shot up $25 a barrel, closing at $95.93 in New York on Friday, near an all-time inflation-adjusted peak. Unlike earlier spikes in oil prices, which came on the heels of war in the Middle East, this latest ascent does not appear to be linked to any one conflict or to any physical shortage.

Instead, traders who treat oil like any other commodity are widely thought to be driving prices upward, bolstered by a weak dollar and money flowing out of stock markets and other investment vehicles.

So far U.S. consumers have not felt the full impact. Sluggish U.S. gasoline demand over the past two months has made it hard for oil giants to pass through higher costs; refinery profit margins, which hit records in the spring, have been squeezed. But if high crude oil prices persist, they will flow through to the gas pump. Yesterday, the Lundberg Survey reported that the average retail price of regular gasoline is up 16 cents in the past two weeks to $2.96 a gallon.

Many veteran oil analysts say this is a bubble. Oil is historically a cyclical business. Modestly higher production by the Organization of Petroleum Exporting Countries, a warm winter, slower U.S. economic growth and a flattening of demand in the United States could puncture these lofty prices.

"It just seems that the market is spasming here," said Adam Robinson, an oil analyst at Lehman Brothers. If slowly declining petroleum inventories start to build again, he said, "the radical increase we've seen to the upside can repeat on the way down." Oppenheimer & Sons analyst Fadel Gheit says oil is $30 a barrel overpriced.

But analysts also say that the past 10 weeks have demonstrated the power of traders at investment houses. Deutsche Bank oil economist Adam Sieminski, who spent six months on the bank's trading desk, said it is important not to underestimate the role of sentiment and technical factors, such as patterns of price movements and the need to hedge risks in other markets. Now, when investors hold a large number of options to buy oil at a price of $100, he says, "it's almost like magnetism. It draws prices to that level."

It's called speculation. It's what drove the real estate bubble, and it's what is driving the run-up in oil prices.