What Driving Prices Up? Speculation!
According to two recent studies, speculation is the main culprit for causing rising gas and commodity prices.
The Oil Price Information Service (OPIS) and the Wall St Journal points to speculators as the party most responsible for driving up prices:
Strangely, the current run-up in prices comes despite sinking demand in the U.S. “Petrol demand is as low as it’s been since April 1997,” says Tom Kloza, chief oil analyst for the Oil Price Information Service. “People are properly puzzled by the fact that we’re using less gas than we have in years, yet we’re paying more.”
Kloza believes much of the increase is due to speculative money that’s flowed into gasoline futures contracts since the beginning of the year, mostly from hedge funds and large money managers. “We’ve seen about $11 billion of speculative money come in on the long side of gas futures,” he says. “Each of the last three weeks we’ve seen a record net long position being taken.”
According to one study highlighted by Time Magazine, commodity investors and speculators also are largely to blame for rising food prices, just as they were in ’98 and ’11:
The New England Complex Systems Institute released a study last week linking speculation in global commodity markets to rising food prices. The study indicates that spikes in food prices in 2008 and 2011 came largely as a result of investor speculation and increased ethanol conversion, in which corn is used for fuel rather than food. The authors expect another “food bubble” to occur by 2013, which “may lead to major social disruptions” on par with the riots and unrest in North Africa and the Middle East in 2008 and ’11.
Most commodities and futures speculation occurs at approximately a half dozen major Wall St firms, according to numerous reports.