Hedge Funds-The (Real) Reason Behind High Oil Prices?

Washington DC May 14, 2008; The AIADA newsletter reported that on May 13, the price of a barrel of oil briefly hit a record of $126.98 on the New York Mercantile Exchange. The reason was ostensibly that Iran was cutting oil production.

But there is no gasoline shortage.

In fact, in the U.S., stockpiles of oil climbed by 11.9 million barrels in April; they were up by nearly 33 million barrels since Jan. 1. At the same time, MasterCard's May 7 gasoline report showed that gas demand has fallen by 5.8%.

So why are prices still going up? Ed Wallace, writing in BusinessWeek, says prices are rising due to an unregulated commodities markets and greed.

Commodities have often been the refuge for investors who have lost money on equities or fixed-income investments. If not restrained, they can drive up the price of goods that we can't get out of buying.

In the press we are bombarded daily with justifications for the high price of oil, such as strife in the Nigerian oil patch. However, the Senate took a dim view of those excuses, saying that manipulative hedge fund managers are "making bold predictions of shocking price advancements to come" and adding "more fuel to the bullish fire in a sort of self-fulfilling prophecy."

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